Welcome to our Federal Budget Spotlight Series: Negative Gearing Changes – A New Landscape for Property Investors
Refocusing tax incentives toward new housing supply
The 2026–27 Federal Budget includes a proposed reform to negative gearing, aimed at encouraging investment in new housing supply.
From 1 July 2027, the Government proposes to limit negative gearing to newly constructed residential properties (subject to legislation).
What’s changing?
Under the proposed rules:
- Investors would only be able to offset rental losses against other income where the property qualifies as a new build
- Losses from established residential properties would be quarantined
- These losses could be carried forward to offset future rental income or capital gains from residential property
Grandfathering rules
The proposal includes grandfathering provisions, which, if enacted, would mean:
- Properties acquired before 7:30pm (AEST), 12 May 2026 are not affected
- Transitional treatment applies for acquisitions up to 30 June 2027
- The full application of the new rules would begin from 1 July 2027
This creates a clear distinction between existing holdings and future investments.
What qualifies as a “new build”?
The proposed definition includes:
- Newly constructed dwellings
- Developments on vacant land
- Projects increasing housing supply or density
The following would generally not qualify:
- Renovations or knock-down rebuilds
- Previously sold or occupied properties (subject to limited exceptions)
Who is impacted?
The proposed changes are expected to apply to:
- Individual investors
- Partnerships
- Many trust structures
However, certain entities would be excluded, including:
- Superannuation funds
- Widely-held trusts (such as managed investment trusts
What does this mean for investors?
- Investment strategy considerations
There may be a stronger incentive to consider new developments compared to established properties.
- Cash flow implications
Investors acquiring established properties under the new rules:
- May not be able to offset rental losses against salary or business income
- May instead rely on future income or gains to utilise those losses
- Portfolio diversification
Investors may wish to review how property fits within their broader investment strategy.
- Long-term tax planning
The ability to carry forward losses remains, but timing of tax benefits may be deferred.
Broader implications
The policy is intended to:
- Encourage new housing supply
- Redirect investment toward new construction
- Reduce reliance on tax-driven investment in established properties
Our perspective
This proposal represents a targeted change to how property investment is taxed, rather than a full removal of negative gearing.
While tax outcomes may change for certain investments, opportunities remain for investors who:
- Understand the eligibility rules
- Align decisions with long-term investment goals
- Plan proactively ahead of implementation
Disclaimer
This article provides general information only and is based on the proposed measures announced in the 2026–27 Federal Budget. These measures are subject to legislation and may change. This content does not constitute tax, financial or legal advice. You should not act on this information without obtaining professional advice tailored to your circumstances
