In a Budget framed around intergenerational fairness and housing affordability, the government has announced that from 1 July 2027 negative gearing – the ability to deduct excess expenses that exceeds rental income from a residential investment property against other income - will no longer be available for future investors unless they purchase a new build.  These changes will apply to individuals, partnerships, companies and most trusts.

What are the transitional provisions?

Property investors who were negatively gearing on Budget night will be able to continue to negatively gear until they finally dispose of the property.  People who had contracts that were entered into but not settled at 7.30pm on 12 May 2026 (Budget night) are classed as existing investors.

Property investors who were positively geared on Budget night, but who become negatively geared post Budget night, for example due to increased interest rates or state taxes, will also be able to negatively gear in the future as the transitional provisions are based on when you acquired the property rather than whether you were negatively geared on Budget night. 

Property investors who buy an existing investment property after Budget night and before 1 July 2027 will be able to negatively gear up to 1 July 2027, but after 1 July 2027 will be subject to the new rules.

Property investors who buy an investment property after 1 July 2027 that is not a new build can only use negative gearing losses against other rental income or capital gains from residential properties in that year or future years. That is, the negative gearing losses are effectively quarantined against rental income or capital gains from other residential property investments. Using carried forwar negative gearing losses against future capital gains may be more advantageous where the capital gain pushes a taxpayer into a higher marginal tax bracket.

To what properties will this apply? 

This will apply to all residential properties other than new builds. Commercial properties can continue to be negatively geared. So too can shares and other investments.

Rumors that this measure would restrict negative gearing to one property have not eventuated.

New build

A new build is intended to genuinely add to supply.  Knock-down rebuilds and substantial renovations will generally not qualify as new builds unless there is an increase in supply, for example a house is demolished to be replaced with a greater number of dwellings, for example duplex/units. A knock-down rebuild of a 2/3 bedroom house with a 4/5-bedroom house would not qualify.

What qualifies as a new build?

• Greenfield developments (that is completely new builds on vacant ground).
• A newly constructed apartment bought off-the-plan.
• A duplex constructed through a knock-down rebuild replacing a single, free-standing house.
• A newly built property which is occupied for less than 12 months before being first sold.

What does not qualify as a new build?

• An established property that has recently been extended to add additional bedrooms
• A free-standing house constructed through a knock-down rebuild replacing an older, smaller free-standing house.
• A granny flat built adjacent to an established property that is not eligible for negative gearing.
• A newly built property which is occupied for more than 12 months before being sold to a subsequent investor

Are there exemptions?

Yes. Properties in widely held trusts (including managed investment trusts) and superannuation funds (including self-managed investment funds) are excluded.

There will also be specific exemptions for build-to-rent developments and private investors supporting government housing programs.

Questions that need answering

• How will a change in purpose of a property from a principal place of residence to a rental property after 12 May 2026 be treated under this proposal? Will the applicable date be the date of acquisition or the change of purpose when considering whether the negative gearing provisions apply?
• How will a change from a negatively geared property as at 12 May 2026 to a principal place of residence then a further change to a negatively geared property be treated?