By Jason Given - 2026-06-11 - 9 min read
The May 2026 Federal Budget introduced significant reforms to negative gearing on established investment properties. From 1 July 2027, if you purchase an established (existing) property after Budget night (12 May 2026), the way you can use rental losses is changing.
Under the new rules, you can still deduct holding costs that exceed your rental income - but those losses can only be offset against future rental income, not against other income like your salary or business earnings. This is a fundamental shift in how negative gearing works for established property.
Two important points to understand upfront. First, new builds are completely unaffected. The government has deliberately excluded new construction from these changes to encourage housing supply. Second, existing holdings are grandfathered. If you already own an investment property, nothing changes for you.
Key distinction: The reforms target established property only. If you buy or build a brand new dwelling after 1 July 2027, full negative gearing continues to apply exactly as it does today.
Alongside the negative gearing changes, the government is also reforming the capital gains tax (CGT) discount. Currently, if you hold an investment property for more than 12 months, you receive a flat 50% discount on the capital gain when you sell. This has been a cornerstone of property investment strategy for over two decades.
From 1 July 2027, the 50% CGT discount is being replaced with two new mechanisms. First, an inflation-based discount that adjusts your cost base for actual inflation over the period you held the property. Second, a minimum 30% tax floor on capital gains, regardless of your marginal tax rate.
In practical terms, this means the after-tax outcome when selling an investment property will depend on how long you held it and how much inflation occurred during that period. For shorter holds with modest capital growth, the impact could be meaningful. For longer holds where inflation has been significant, the inflation-based discount may partially offset the loss of the flat 50% discount.
Here is a worked example to illustrate the impact on a typical Adelaide investor.
Scenario: Established property purchase
An investor earning a $130,000 salary buys a $650,000 established investment property. After accounting for loan repayments, council rates, insurance, property management fees, and maintenance, the annual holding costs exceed rental income by $12,000.
Under current rules:
The $12,000 loss offsets the investor's salary income, reducing taxable income from $130,000 to $118,000. At the 37% marginal tax rate, this saves approximately $4,440 in tax each year.
Under the new rules (post 1 July 2027 for new established purchases):
The $12,000 loss can only be carried forward and offset against future rental income from that property or other rental income. It cannot reduce the investor's salary income. The investor's taxable income stays at $130,000, meaning they pay the full tax on their wages. The annual out-of-pocket cost increases by $4,440.
Over a five-year hold, that is an additional $22,200 in cash that the investor needs to fund from after-tax income. This does not mean the investment is necessarily a bad one - the losses are still deductible, just quarantined to rental income rather than wages. But it changes the cash flow equation significantly.
The reforms have clear boundaries around who is impacted. Understanding these is essential before making any decisions.
Existing property owners - not affected
If you already own an investment property, the current negative gearing rules continue to apply in full. Your holdings are grandfathered. You can continue to deduct rental losses against your salary and other income exactly as before. This applies regardless of when you purchased the property.
New build purchases - not affected
If you buy a brand new property - whether that is a house and land package, an off-the-plan apartment, or any newly constructed dwelling - the current negative gearing rules continue to apply in full. The government has deliberately carved out new builds to incentivise housing supply.
Established purchases after Budget night - affected from 1 July 2027
If you purchase an established (existing) property after Budget night (12 May 2026), the restricted negative gearing rules apply from 1 July 2027. Between Budget night and 30 June 2027, the current rules still apply. From 1 July 2027, losses on that property can only offset rental income.
These reforms do not mean property investment is no longer viable. They change the financial structure, and that means your approach needs to adapt. Here are the key considerations.
Timing of purchases. If you are considering buying an established investment property, the transition period between now and 1 July 2027 is important. Properties purchased after Budget night will still benefit from full negative gearing until 30 June 2027. However, buying purely to beat a deadline is rarely sound strategy - the property still needs to stack up on its own merits.
New build versus established. The reforms create a clear incentive to consider new builds. Full negative gearing continues for new construction, and depending on location and property type, a new build may offer better depreciation benefits as well. This does not mean new builds are automatically the right choice - location, rental yield, and growth prospects all matter.
Hold or sell decisions. If you already own established investment properties, these reforms do not affect you directly. However, they may affect the pool of future buyers when you eventually sell, which could influence long-term capital growth in established property markets. This is speculative and depends on many factors.
Speak with your accountant. The tax implications of these reforms are specific to your income, marginal rate, portfolio structure, and investment goals. A qualified tax adviser can model the actual impact on your situation. We strongly recommend speaking with your accountant before making any changes to your investment strategy.
Lending structure matters more than ever. With negative gearing restricted on established property, the way your loans are structured becomes even more important. Interest-only versus principal and interest, fixed versus variable, offset accounts, and loan splits all affect cash flow. Lendology can structure your lending to match the new environment and help you manage the transition.
Lendology's role: We work with investors across Adelaide to structure lending that maximises cash flow efficiency. Whether you are buying your first investment property or restructuring an existing portfolio, we can help you navigate these changes. Book an investment lending chat
No. Existing investment property holdings are fully grandfathered. If you already own an established investment property, the current negative gearing rules continue to apply. You can still deduct losses against your other income, including wages, exactly as before.
Yes. The reforms only apply to established (existing) properties purchased after Budget night (12 May 2026). New builds - including house and land packages, off-the-plan apartments, and any newly constructed dwelling - are completely unaffected. The government has deliberately excluded new builds to encourage housing supply.
The new rules take effect from 1 July 2027. If you purchase an established investment property after Budget night (12 May 2026), the current rules still apply until 30 June 2027. From 1 July 2027, the restricted negative gearing rules apply to that property.
The current 50% CGT discount is being replaced from 1 July 2027 with an inflation-based discount plus a minimum 30% tax on capital gains. Rather than a flat 50% discount, the discount will be calculated based on actual inflation over the holding period, and a floor of 30% tax will apply to capital gains regardless of your marginal rate.
It depends on your individual situation. Buying solely to beat a deadline is rarely a sound strategy. The right approach depends on your income, existing portfolio, investment goals, and cash flow. Speak with your accountant about the tax implications and your broker about lending options before making a decision.
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