Updated 10 October 2026
From 1 July 2027, net rental losses on established residential property bought after 7:30pm AEST on 12 May 2026 can no longer be deducted against wages or other income. They are quarantined against residential rental income and carried forward. Property bought before the cut-off, and new builds, keep full negative gearing.
At a glance
- The change starts on 1 July 2027 and is law: Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
- It applies to established residential property acquired after 7:30pm AEST on 12 May 2026.
- Quarantined losses offset residential rental income and residential capital gains, and unused amounts carry forward.
- Property acquired before the cut-off and new residential dwellings are exempt.
- A buyer after Budget night who holds past 1 July 2027 also meets the CGT cost base reset on the same property.
In this guide
What changed
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 limits negative gearing for residential property to new builds. For a dwelling caught by the rule, a net rental loss is no longer deductible against salary, business income or other investment income. The loss is not lost. It is set aside and can only be used against income from residential rental property, or against a capital gain on residential property.
The ATO's overview of the reform confirms the measure is law and that property held at the announcement time is exempt.
The 12 May 2026 cut-off
The test is when you acquired the property, not when you first rented it.
- Acquired before 7:30pm AEST on 12 May 2026. The property keeps full negative gearing for as long as you own it.
- Acquired after that time. If it is an established dwelling, losses are quarantined from 1 July 2027.
Losses for the 2026-27 income year are unaffected either way, because the limit does not start until 1 July 2027.
For a purchase under a contract, the acquisition time is the contract date, not settlement. A contract signed before 7:30pm AEST on 12 May 2026 that settled afterwards sits on the exempt side of the cut-off. How this cut-off differs from the CGT one is set out in is negative gearing grandfathered.
Draft legislation released in August 2026 would keep the exemption for a home bought before the cut-off that is later rented out, for a share inherited from a spouse or co-owner, and for a transfer between spouses after a relationship breakdown. That draft, the Tax Reform No. 3 Bill, had not been introduced when this post was published.
What counts as a new build
New residential dwellings are exempt, so their owners can keep deducting rental losses against other income. The detailed definition is in an exposure draft and can still change. As drafted, a dwelling is new for its owner in four cases:
| Case | What it covers |
|---|---|
| Building on land with no dwelling | You acquire land without a residential dwelling and build or install one |
| Adding dwellings | You add to the number of dwellings on land that already has one; the additional dwellings qualify |
| Converting a building | You convert a non-residential building into a dwelling |
| Buying a new dwelling | You buy a dwelling that was new for the seller, no more than 24 months after its certificate of occupancy was first issued |
In each case the certificate of occupancy must first be issued after 7:30pm AEST on 12 May 2026. Replacing one house with one house does not add a dwelling, though the draft treats a rebuild after demolishing a derelict building as new. A substantial renovation does not make an established dwelling new.
How quarantined losses carry forward
A quarantined loss is carried forward until it can be used. It can be applied against:
- net rental income from residential property in a later year, including from another residential property; and
- a capital gain on the sale of residential property.
It cannot be applied against wages, business income or gains on other assets. For a buyer who expects the property to turn cash-flow positive, the loss is deferred. For a buyer who relies on the annual deduction to fund the holding cost, the arithmetic changes from the first year.
Warning
Keep the records from year oneQuarantined losses can sit unused for years before they meet income or a gain. Keep the rental schedules, loan statements and the tax return workings for every year, because the carried-forward figure has to be supported when it is finally used.
The interaction with the 1 July 2027 reset
A buyer after Budget night who still holds the property on 1 July 2027 faces both changes on the one asset. The rental losses are quarantined, and the capital gain is split at the market value at the end of 30 June 2027. Growth before that date keeps the 50 per cent discount. Growth after it is indexed and taxed at a minimum of 30 per cent.
For a recent purchase the pre-reset slice is short, so the value at the reset date sits close to the purchase price and Treasury's formula will often be adequate. Where the property was bought well, renovated, or sits in a market that moved sharply in the first year, the two figures can differ. Our 1 July 2027 CGT calculator shows both, and the 1 July 2027 valuation page explains the report. How the discount is divided is covered in CGT discount changes from 1 July 2027.
Bought after Budget night and holding past 1 July 2027?
The same property meets the CGT reset. A 1 July 2027 valuation fixes the value your gain is split at. Residential $297, commercial $595, AUD inc. GST, 24 to 48 hours.
Start your orderHow it worksWhat to do
- Confirm your acquisition date. Find the contract date and compare it with 7:30pm AEST on 12 May 2026.
- If you are caught, re-run the cash flow. Model the holding cost without the annual deduction against other income.
- If you bought new, keep the evidence. The certificate of occupancy date and the purchase contract are what establish new dwelling status.
- Deal with the CGT reset separately. It applies whether or not negative gearing is limited.
Negative gearing is a tax question for your accountant. The valuation question is the reset value, and the whole reform is summarised on CGT changes in Australia.
For advisers
For accountantsTwo dates now sit on every residential investment file: the acquisition time for negative gearing and the end of 30 June 2027 for the CGT split. Record both when the client is onboarded.
Common questions
When do the negative gearing changes start?
The limit starts on 1 July 2027. It applies to net rental losses on established residential property acquired after 7:30pm AEST on 12 May 2026. Losses for the 2026-27 income year are not affected, and property acquired before the cut-off is exempt for as long as it is held.
Who is affected by the negative gearing changes?
Investors who acquired an established residential dwelling after 7:30pm AEST on 12 May 2026. From 1 July 2027 they cannot deduct a net rental loss against wages or other income. Owners of earlier purchases, new residential dwellings and commercial property are not affected.
What happens to the losses I cannot deduct?
They are quarantined and carried forward. They can be used against net income from residential rental property in a later year, or against a capital gain on residential property. They cannot be used against wages, business income or gains on other assets.
Are new builds exempt from the negative gearing changes?
Yes. A new residential dwelling keeps full negative gearing, and its owner can choose the 50 per cent CGT discount at sale. The detailed definition was still an exposure draft when this post was published, and it turns on the certificate of occupancy date.
Do the negative gearing changes affect capital gains tax?
They are separate measures in the same Act. Negative gearing turns on the 12 May 2026 acquisition time. The CGT change splits every gain at the market value at the end of 30 June 2027, whenever the property was bought.
