# Negative Gearing Reform 2027: Two Changes Every Australian Property Investor Needs to Understand
For more than two decades, negative gearing has been one of the most powerful tax tools available to ordinary Australian wage earners. The mechanism is simple: borrow to buy a rental property, run it at a paper loss after interest, depreciation and maintenance, and deduct that loss against your salary. The 2026-27 Federal Budget, handed down on 12 May 2026, leaves that mechanism intact for everyone who already owns. But for properties bought from Budget night onwards, the rules split in two — and from 1 July 2027 the way rental losses interact with salary income will change for the first time in a generation.
This guide walks through the reform in plain English. It covers the two-part change, how the grandfathering boundary actually works, a worked example using a $20,000 rental loss against a $90,000 salary, and the practical impact on first-time investors, existing landlords and downsizers. It is written for the Australian-Chinese community in particular — a demographic that has invested heavily in residential property over the last decade — and it sits alongside our sibling guides on the CGT discount reform and the grandfathering rules in depth.
What was actually announced on Budget night
The 2026-27 Budget contains two related but distinct changes to negative gearing, both taking effect on 1 July 2027. The Government has framed the package as a way to redirect investor money toward new housing supply while protecting the millions of Australians who already own a rental.
Change one — new investment properties. Any investment property *acquired after Budget night (12 May 2026)* that is not a brand-new build will no longer qualify for full negative gearing against salary or other income. The full deduction against salary remains for new builds — meaning newly constructed dwellings, off-the-plan apartments that have not previously been lived in, or house-and-land packages on a fresh title. The policy intent is to channel investor capital into new supply rather than bidding up existing stock.
Change two — established housing acquired after Budget night. If you buy an established (previously occupied) dwelling on or after 12 May 2026 and rent it out, you can still deduct rental expenses — but only against rental income, not against your salary or other income. If your rental expenses exceed your rental income, the excess loss is carried forward and applied against future rental income or against the capital gain when you eventually sell.
Grandfathering — properties held before Budget night. Every investment property already held before 12 May 2026 keeps the current negative gearing rules permanently. There is no sunset date and no taper. If your property settled on 11 May 2026, you can negatively gear it against your salary for the rest of its life — including after you refinance, after you change tenants, even if you renovate it heavily. The grandfather attaches to the property in your hands, not to your loan or tenancy arrangements.
It is worth noting that the 14-month window between the announcement (12 May 2026) and the start date (1 July 2027) is deliberate. It is long enough to let any contract already exchanged before Budget night settle under the old rules, and long enough for buyers to make an informed decision about whether to push forward, switch to a new build, or step back.
How the grandfathering boundary actually works
The phrase "held before 12 May 2026" sounds simple but has a few sharp edges in practice.
Contract date vs settlement date. The Government's announcement uses Budget night as the bright line, and the conservative reading is that the relevant date is the contract date (the day you signed and exchanged), not the settlement date. If you exchanged on 5 May 2026 and settle on 30 June 2026, you should be on the old rules. If you exchanged on 13 May 2026 and settle on 30 June 2026, you are on the new rules. The exact wording will be confirmed in the enabling legislation; until then, treat the contract date as the trigger and keep a complete paper trail.
Refinancing does not break grandfathering. If you refinance a grandfathered property in 2028, 2030 or beyond, the property is still grandfathered. The new loan attaches to a property already inside the protected pool. The same applies if you split the loan, switch lenders, or change from principal-and-interest to interest-only.
Substantial renovations may be reassessed. This is one of the open questions for the legislation. A simple refresh — new paint, new kitchen, a bathroom upgrade — does not change anything. But if you knock down a grandfathered weatherboard and replace it with three townhouses, the new dwellings are arguably "new" investment properties acquired after Budget night, and the new rules would apply to them. Watch the draft legislation closely if you are planning a knockdown-rebuild.
Transfers between spouses and into trusts. If a grandfathered property is transferred to a spouse or into a discretionary trust after 12 May 2026, the new owner is acquiring it after Budget night. Conservatively, grandfathering would be lost. There may be carve-outs for ordinary marital property settlements, but again the legislation will be the source of truth. If you are considering an ownership restructure for asset-protection or estate-planning reasons, do not act before the bill is enacted — get advice.
The worked example: $20,000 rental loss on a $90,000 salary
This is the cleanest way to see what changes. Imagine you earn a $90,000 salary, you buy an established three-bedroom house in western Sydney as an investment, and after interest, council rates, insurance, agent fees and depreciation you run a $20,000 rental loss in your first full year.
Under the current rules (and for anyone who already holds the property on 11 May 2026):
- Salary: $90,000
- Rental loss applied against salary: -$20,000
- Taxable income: $70,000
- Tax saving from the $20,000 loss (at the 30% bracket for FY2026-27, the top dollar of $90k sits inside the $45,001–$135,000 band taxed at 30%): roughly $6,000 of tax saved in cash this year
That $6,000 effectively subsidises the holding cost of the property and is what makes the strategy work for many wage-earner investors.
Under the new rules from 1 July 2027 (if you acquire an established property after 12 May 2026):
- Salary: $90,000 — taxed in full
- Rental income (say): $35,000
- Rental expenses: $55,000
- Rental loss: $20,000
- Rental loss applied against salary: $0
- The full $20,000 is carried forward as a rental-only loss
- Tax saving this year: $0
The $20,000 is not lost forever. It sits in a carry-forward pool that you can use against future rental income — for example, if rents rise and your property becomes neutrally geared or positively geared in 2030, the accumulated losses absorb the rental profit before it becomes taxable. Any losses still unused when you sell are applied against the capital gain on disposal, which is itself recalculated under the new CGT discount rules from 1 July 2027.
The headline change is cash-flow timing. Under the current rules, the tax benefit lands in your pocket each year as a bigger refund. Under the new rules, the benefit is deferred — sometimes for many years — until rental profits or a sale unlock it. For investors who relied on the annual refund to meet their loan repayments, that timing difference is the real story.
Our tax refund calculator lets you model both scenarios side by side. Plug in the same income, with and without the rental loss applied to salary, and you can see exactly what the deferred deduction costs you in present-day cash flow.
Practical impact on different buyer types
The reform does not affect every investor the same way. Where you sit on Budget night — already a landlord, about to become one, or downsizing — changes the calculation completely.
The first-time investor (looking to buy in 2026 or later). This is the buyer most affected by the change. From 1 July 2027, an established-housing purchase no longer comes with an annual salary refund attached. You have three real options. First, push your purchase through before 12 May 2026 to lock in grandfathering — but only if it makes sense on the fundamentals, not just for the tax position. Second, switch your search to new builds, where full negative gearing against salary is preserved. Third, accept the new rules and model your investment on rental yield, capital growth and the eventual deduction-on-sale rather than on the annual refund.
For many first-time investors in the Australian-Chinese community, who often save aggressively and prefer the security of bricks and mortar, the third path is the most honest. A property that needs a $6,000 annual tax refund to wash its face is a property that is probably overpriced — and the reform forces that conversation forward.
The existing landlord (already owns one or more properties on 11 May 2026). You are in the strongest position. Every property you already hold is grandfathered for life. You can keep refinancing, keep claiming losses against salary, and keep treating the portfolio exactly as you do now. The only change for you is on the CGT side when you eventually sell — see the CGT discount reform guide — and on any new property you add after Budget night, which will fall under the new rules.
If you have been thinking about expanding the portfolio, the question becomes: does the new property make sense on rental yield alone? If it does, buy it (new build or established) and treat the deferred deduction as a bonus on sale. If it does not, the reform is doing you a favour by removing the tax bait that was hiding a thin investment.
The downsizer who wants to retain the family home as a rental. If you bought your principal place of residence years ago, move out after 12 May 2026, and convert it to a rental, the timing of the *conversion* is what matters. The property itself has been held since (say) 2012, but it only enters the investment-property tax system on the day you first rent it. The conservative interpretation is that conversion after Budget night triggers the new rules — the property is being "acquired" as a rental at that point even though you have lived in it for years. Again, the legislation will clarify, and a registered tax agent can advise on your specific case.
The investor with a contract already signed. If you exchanged contracts before 12 May 2026 and settle afterwards, you should be grandfathered. Keep your contract, your section 32 / contract of sale, and any deposit receipts as proof of the exchange date. Do not let your conveyancer talk you into a contract variation that resets the date.
What you can still claim — the mechanics inside the new world
It is worth stressing what the reform does *not* change. Under the new rules, you can still claim every rental expense the ATO already allows: interest on the investment loan, council and water rates, insurance, body corporate fees, agent management fees, repairs and maintenance, depreciation on plant and equipment, capital works deductions on the building structure, and travel for inspections (where eligible). The change is purely about where those deductions can be applied — against rental income only, not against salary — and what happens when the deductions exceed the income (carry forward).
That means good record-keeping is more important than ever, not less. Every dollar of legitimate expense you can capture against the rental adds to the carry-forward pool, which eventually lands in your pocket when rents catch up or when you sell. Sloppy records mean lost deductions, and lost deductions now compound across years instead of just hurting one tax return.
If you want a refresher on what counts as a legitimate rental expense and how depreciation interacts with the capital works rules, our federal budget 2026 personal tax changes overview links to the relevant ATO guidance.
What to do in the 14 months before 1 July 2027
The transition window is the most valuable part of the reform package. Used well, it gives you time to make a deliberate decision rather than a reactive one.
If you already own. Stop and check that the property records you would need to prove the acquisition date — contract of sale, settlement statement, lender's first drawdown — are filed somewhere you can find them in five or ten years. Grandfathering is permanent, but it is also evidence-based. A property held since 2018 is grandfathered, but you will need the paperwork to prove it if the ATO ever asks.
If you are mid-purchase. Confirm your contract exchange date with your conveyancer in writing. If you exchanged before 12 May 2026 you are inside the grandfather; if you exchanged after, plan your finances around the new rules taking effect on 1 July 2027.
If you are still looking. Decide which side of the rules you want to be on, and buy accordingly. A grandfathered established property bought before 12 May 2026 is a different financial product to the same property bought after — same bricks, same rent, very different after-tax cash flow.
If you are considering an ownership restructure. Wait for the legislation. A premature transfer into a trust or to a spouse could cost you the grandfather permanently. The cost of waiting twelve months for clarity is much smaller than the cost of losing decades of negative gearing.
And if you want to see the dollars for your own situation, model the before-and-after in the AusTax AI tax refund calculator — including the carry-forward scenario where the deduction lands years later instead of this year.
Frequently asked questions
_See the FAQ section below for answers to the most common questions about the reform._
Disclaimer
Need Help With Your Tax Return?
Complex situation? a registered tax agent (see the directory) Our partner agents review every detail for accuracy and compliance.
*Disclaimer: This is general information only and does not constitute personal tax advice. Consult a registered tax agent for advice tailored to your specific situation. Always verify against the latest ATO guidelines at ato.gov.au.*
This is general information only — not legal or financial advice. For your specific situation, consult a registered tax agent.