The Great Australian Dream Part 2: The Negative Gearing Shake-Up

The negatively geared investment property has been a cornerstone of building wealth in Australia for a generation. Buy a place, let a tenant pay rent to use it, and use the tax rules to help carry the loan while the value grows. For a long time the rules of that game barely moved.

Then the 2026-27 Federal Budget took a big red pen to the rulebook. At Aevum Accounting, we are already fielding questions from clients who have heard something has changed but are not sure what, or whether it touches them. This guide is the Part 2 companion to our Investment Property 101 tax guide. If you have not read Part 1, start there for the fundamentals, then come back here for what is new and what it means for your next move.

Part 1: A Quick Refresher

Before we get to the shake-up, here is a fast recap of the essentials from Part 1.

On the income side, you declare the rent, plus things like insurance payouts and any money a tenant reimburses you and you keep. On the deductions side, loan interest is the big one, along with council and water rates, land tax, landlord insurance and strata levies. Borrowing costs are spread over five years rather than claimed all at once.

Then there is the classic trap: a repair versus an improvement. Fixing a broken fence panel is a repair, and it is deductible now. Replacing the whole fence with a new one is an improvement, which is a capital cost claimed over time. Depreciation lets you claim capital works on the building at 2.5% a year, though you cannot claim depreciation on second-hand plant and equipment that came with a property bought after May 2017.

All of that is still true, and still important. What follows is what has changed.

The Negative Gearing Shake-Up

First, a quick definition. A property is negatively geared when your deductible expenses are more than the rent you bring in, so it runs at a loss. Up until now, you could use that loss to reduce the tax on your other income, like your salary. That last part is what is changing.

From 1 July 2027, if you own an established residential property that you bought after budget night, being 7.30pm on 12 May 2026, those rental losses can no longer be offset against your salary. They can only be offset against rental income or capital gains.

So the loss does not simply vanish. It gets quarantined. The loss cannot go out and reduce your salary anymore. It sits to one side until you either make a rental profit or you sell the property and make a capital gain. Only then is it allowed back out.

An Example: Sarah and John

Numbers make this click. Take two investors, Sarah and John.

Sarah buys a twenty-year-old established house. The rent does not cover the mortgage, so it runs at a $15,000 loss for the year. Under the new rules, Sarah cannot use that loss to reduce the tax on her salary. It is quarantined until she sells.

John buys a brand-new, off-the-plan apartment. Because the government wants to encourage new construction, new builds are exempt. So John can still use his $15,000 loss to reduce his taxable salary right away.

Same loss, very different outcome. The only difference is established versus new build.

Established vs New Build

That distinction is now the single most important factor in how an investment property is taxed. New builds keep the full benefits, both negative gearing and the capital gains discount. Established properties bought after the cut-off lose the salary offset. The design is meant to reward new supply and cool demand for established housing, so the timing of when you sign now matters just as much as the property you are signing for.

Grandfathering: Existing Owners Are Protected

If you already own an investment property, here is the reassuring part. Existing properties are grandfathered. If you acquired the property, or you were already under contract, before the budget-night cut-off, the current rules keep applying for as long as you hold it.

The catch is that grandfathering attaches to the property in your hands. The moment you sell, it is gone. If it is an established home, the next buyer is under the new regime. So understanding exactly where your grandfathering sits is important before you think about selling or restructuring.

The Capital Gains Twist

There is a second change that starts on the very same day, and this one reaches well beyond property.

From 1 July 2027, the 50% capital gains discount is being replaced. Instead of halving your gain, you adjust your cost base for inflation, which is called indexation, and then pay a minimum of 30% tax on the resulting gain.

This is not just a property change. It applies to all assets for individuals, including shares, exchange-traded funds and even cryptocurrency. The one carve-out for property is, again, new builds. Eligible new builds keep the 50% discount.

So if you have been quietly building a share or crypto portfolio, this is a whole-of-portfolio issue, not just a property one.

Four Myths, Busted

There is a lot of misinformation flying around right now, so let us clear up the big ones.

Myth 1: Negative gearing is dead and buried. Not true. It has been restricted, not abolished. Only the salary offset, on established properties bought after the cut-off, is affected. Existing owners keep it, and new builds keep it in full.

Myth 2: My current investment property is about to lose its tax benefits. Also not true, if you bought before budget night. You are grandfathered, and the change does not touch properties already held under the old rules.

Myth 3: These changes are already in force, so it is too late to do anything. The rules start on 1 July 2027. But here is the catch that trips people up. The acquisition cut-off was budget night, 12 May 2026, and that has already passed. So any established property you buy today is already on the new side of the line for when the rules switch on.

Myth 4: It only affects property investors. Wrong. The capital gains change hits everyone with assets. If you have a share or crypto portfolio, your gains after 1 July 2027 are caught by that new 30% minimum too.

Your Action Plan

So what should you actually do right now? A few things.

If you are about to buy an established investment property, do not sign a contract before you talk to your accountant. You need to model the after-tax numbers under the new rules first.

If you are considering new construction, factor in that it keeps both the negative gearing and the capital gains discount, which changes the maths considerably.

And if you already own, understand exactly where your grandfathering sits before you think about selling or restructuring. The right advice, before you act, can be worth tens of thousands.

Make Your Next Move the Right One

The rules of the great Australian dream have genuinely changed, and the acquisition deadline has already passed. If you own an investment property, or you are planning your next purchase, do not guess your way through this.

At Aevum Accounting, we can model your position under the new rules and make sure your next move is the right one. And whatever you do, do not sign anything on an established property until you have had that conversation.

Click here to book your property tax planning session with our team.

Disclaimer: The information and strategies shared in this article are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalised advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional at Aevum Accounting.