Key Highlights

  • The relevant cut-off is 7:30pm AEST on 12 May 2026.
  • The restriction begins on 1 July 2027 for affected established properties.
  • Properties held before the budget-night cut-off are grandfathered under the treatment described.
  • At a 32% marginal rate including Medicare levy, the illustrated tax reduction is $3,840 annually.

Investors who bought an established house or unit after 7:30pm AEST on budget night, 12 May 2026, are now about seven months from a major change in how that property is taxed. From 1 July 2027, negative gearing is limited to new builds for properties acquired after that moment. With the cash rate at 4.85%, prices falling and a related bill still before the Senate, the timing matters for anyone holding a recently purchased rental.

What the law now says

The negative gearing change is ENACTED law under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.

For residential properties acquired after 7:30pm AEST on 12 May 2026, negative gearing is limited to new builds from 1 July 2027.

In practical terms, if you bought an established dwelling after that time, net rental losses from it are not expected to be deductible against salary or other income from the 2027–28 income year.

Properties held before budget night are grandfathered. Existing holdings keep their current treatment, and newly built homes remain eligible regardless of when they were purchased.

How any losses that can no longer be offset are treated, for example whether they can be carried forward against future rental income or gains, is set out in the legislation and should be checked against ATO guidance.

The limit begins on 1 July 2027, not on the purchase date. That creates a transitional gap for investors who bought after budget night.

For the 2026–27 income year, which runs to 30 June 2027, losses from an established property bought after 12 May 2026 are not affected by the new limit, based on its legislated start date.

The change bites from 2027–28 onwards. Investors who are currently relying on a tax refund to help cover a shortfall between rent and costs would see that support fall away from that year.

Hypothetical example: what a $12,000 loss is worth

Hypothetical example: Priya earns a salary of $110,000 and buys an established unit in Brisbane in June 2026, after budget night. Her rent is $26,000 a year, and her interest, rates, strata and other deductible costs total $38,000.

Her net rental loss is $38,000 - $26,000 = $12,000.

Her marginal tax rate is 30%, plus the 2% Medicare levy, so 32% in total. In 2026–27, deducting the loss against her salary would reduce her tax by about 32% x $12,000 = $3,840, or roughly $320 a month.

From 2027–28, because the unit is an established dwelling acquired after the cut-off, Priya would no longer be able to use that $12,000 loss against her salary. Her after-tax cost of holding the property would rise by about $3,840 a year if the figures stayed the same.

If Priya had signed the contract before 7:30pm AEST on 12 May 2026, the unit would be grandfathered. If she had bought a new build, the limit would not apply. This example is illustrative only and uses simplified figures.

The new-dwelling definition is still being settled

What counts as a "new" dwelling is critical to which investors are caught.

Changes affecting that definition are contained in the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026. That is a BILL, not yet law. It was introduced on 14 October 2026 and passed the House of Representatives on 29 October.

The Senate Economics Legislation Committee is due to report on 13 November 2026. The government is reportedly aiming for Senate passage in the third week of November, but that timing has not been confirmed.

Until the bill passes, investors and their advisers cannot be certain how the final definition will apply to properties such as substantially renovated homes or off-the-plan purchases. Anyone relying on a property being "new" should check the final legislated wording.

The market backdrop: rates, prices and supply

The Reserve Bank lifted the cash rate to 4.85% from 3 November 2026. Higher interest costs widen the gap between rent and expenses on a leveraged property, which makes the loss of deductibility more costly.

In its November Statement on Monetary Policy, the RBA said national housing prices were 4.7% below their recent peak in September. It attributed the fall since the March peak mainly to Monetary Policy and tax changes in the federal budget.

Cotality's October index showed national values 6.7% below the March peak, with combined capitals down 8.1% over seven months.

There are early signs that the new-build rule may be shaping activity. ABS data for September showed apartment approvals up 25.6% in original terms, while private house approvals fell 5.3% in seasonally adjusted terms. The ABS did not attribute that shift to tax changes, so it is consistent with the policy aim but not proof of it.

Developers have not reported a surge. Mirvac sold 429 homes in the September quarter, down from 619, and Stockland's net residential lot sales fell from 2,117 to 1,506. The REIQ's Antonia Mercorella warned: "Today's weaker Demand risks becoming tomorrow's housing shortage."

Points worth checking with an adviser

The exact time of the contract matters. The cut-off is 7:30pm AEST on 12 May 2026, and the date of Acquisition for tax purposes may be the contract date rather than settlement.

Records of the purchase date, the property's construction history and any renovation work are likely to be important if the property's status is ever questioned.

Separately, the Tax Reform No. 2 Act 2026 included a negative gearing fix for so-called "widow's tax" situations, which may be relevant for inherited properties or changes in ownership after a death.

Investors may also want to consider how the separate CGT change, which replaces the 50% discount with cost-base indexation and a 30% minimum tax for gains accruing from 1 July 2027, interacts with their holding plans. The ATO has said investors should not get a valuation early, because "a valuation can't be forward-looking".

What to watch

The Senate committee report on Tax Reform No. 3 is due on Friday 13 November 2026. Any amendments to the new-dwelling definition would directly affect which investors are caught.

The Victorian election on 28 November could shift state property tax settings, and MYEFO in December will update federal Revenue estimates for the housing tax changes.

The key date for investors remains 1 July 2027, when the negative gearing limit takes effect for post-budget-night established properties.