For decades, two of the biggest tax incentives for Australian property investors have been negative gearingand the 50% Capital Gains Tax (CGT) discount.
The Government has now passed legislation that will significantly change both.
Whether you already own investment properties, are looking to buy, or are planning your next development, these changes deserve your attention because they could materially affect the after-tax return on your investments.
Here’s what you need to know.
1. Negative gearing will largely be limited to new residential properties
From 1 July 2027, investors purchasing established residential properties will generally no longer be able to claim rental losses against their salary or other personal income.
Instead, negative gearing will primarily be available for new residential builds.
The Government’s objective is clear — encourage investment into creating new housing rather than competing for existing homes.
For many investors, this represents one of the biggest changes to property investing in decades.
2. Existing investors are protected
The good news is that most existing investors won’t be forced into the new rules overnight.
If you owned a residential investment property at 7:30pm (AEST) on 12 May 2026, or had already exchanged contracts before that time, your current negative gearing arrangements are generally preserved until that property is sold.
This “grandfathering” provision provides certainty for investors who made decisions under the previous rules.
3. Buying an established property after Budget night?
This is where things become more complicated.
If you purchased an established residential property after 7:30pm on 12 May 2026, you’ll still be able to negatively gear that property until 30 June 2027.
However, from 1 July 2027, any rental losses can no longer be offset against your salary or business income.
Instead, those losses can generally only be used against:
- income from other residential investment properties,
- future capital gains from residential property, or
- carried forward to future years.
That changes the cashflow equation considerably for many investors.
4. The 50% Capital Gains Tax discount is changing
The other major reform relates to Capital Gains Tax.
The long-standing 50% CGT discount will be replaced with a new system that:
- indexes the property’s cost base for inflation; and
- introduces a minimum 30% tax rate on capital gains.
The intention is that investors are taxed on “real” gains after inflation rather than nominal increases in value.
Exactly how this affects each investor will depend on their circumstances, income and the length of time they’ve held the property.
5. Existing capital growth won’t disappear
Fortunately, there’s also protection here.
Any capital gains that accrued before 1 July 2027 can still access the existing CGT rules.
Only future gains after that date fall under the new regime.
This means record keeping becomes even more important, particularly for investors holding property over many years.
6. New builds become far more attractive
One thing is becoming increasingly obvious.
The Government wants investment to flow into new housing.
By preserving negative gearing for new residential construction while removing it from most established homes, the economics begin shifting towards:
- house and land packages
- off-the-plan apartments
- new townhouses
- knock-down rebuilds
- property developments
For many investors, future opportunities may look quite different to those of the past.
7. Investment decisions become less about tax
For many years, negative gearing has been a significant part of the investment equation.
Going forward, investors may need to focus much more heavily on:
- stronger rental yields,
- positive cashflow,
- quality assets,
- long-term capital growth, and
- overall investment fundamentals.
In other words, buying a property simply because “the tax deduction makes it worthwhile” is likely to become a far less compelling strategy.
8. SMSFs can no longer borrow to buy residential property
Another important change affects Self-Managed Super Funds.
The legislation removes the ability for SMSFs to use Limited Recourse Borrowing Arrangements (LRBAs) to acquire residential property.
Existing arrangements will continue, but new residential borrowing through an SMSF will no longer be available.
For clients considering purchasing property through super, this is a significant strategic change.
9. Investors caught in the transition period should review their position
There’s one group of investors who should pay particularly close attention.
Those who purchased established residential property between 12 May 2026 and 30 June 2027 receive negative gearing benefits for a relatively short period before losing them from July 2027.
If this sounds like you, now is a good time to review:
- your expected cashflow,
- future holding costs,
- refinancing options,
- ownership structure, and
- whether the property still aligns with your long-term objectives.
10. Not everything changes
It’s equally important to understand what hasn’t changed.
These reforms generally do not affect:
- commercial property,
- most share investments,
- many small business concessions,
- various startup concessions, and
- several affordable housing initiatives.
As always, the detail matters, and every investor’s circumstances are different.
So, what should investors do now?
Rather than reacting emotionally, this is a time for careful planning.
Some investors may discover very little changes for them.
Others may need to rethink future acquisitions, ownership structures, financing arrangements or development strategies.
The most successful investors won’t necessarily be those who chase the biggest tax deduction.
They’ll be the ones who understand the new rules, adapt early and continue making commercially sound investment decisions.
Final Thoughts
These reforms represent one of the biggest shifts in Australia’s property investment landscape in many years.
Whether you own one investment property or an extensive portfolio, now is an ideal time to review your strategy before these changes take full effect.
At AD Partners, we’re already helping clients model the financial impact of the new rules, review existing portfolios and identify opportunities that still make commercial sense in the changing environment.
If you’d like to understand how these changes could affect your situation, we’d be happy to have a conversation before your next investment decision.
