Negative Gearing and CGT Reform: What Property Investors Need to Know Before 1 July 2027

The 2026–27 Federal Budget delivered the biggest shake-up to property investment taxation in a generation, and the measures are now law. From 1 July 2027, negative gearing on residential property will be limited to new builds, and the 50% capital gains tax (CGT) discount will be replaced with cost base indexation plus a minimum 30% tax on capital gains.

For property investors, the details matter enormously, because who is affected depends on what you own, when you bought it, and what you buy next. Here is what the reform actually does, and what it means for your tax planning.

The negative gearing changes explained

Negative gearing occurs when the costs of holding a rental property exceed the rent it generates, producing a net rental loss that investors have historically deducted against other income such as salary. From 1 July 2027, that treatment will only be available for eligible new builds.

Investors who purchase an established residential property after 7:30pm AEST on 12 May 2026 (Budget night) will no longer be able to deduct rental losses against wages or other personal income once the new rules commence. Instead, losses can only be offset against residential rental income or future capital gains from rental property, with unused losses carried forward to later years.

Critically, the changes are grandfathered. Properties held at Budget night, including those under contract awaiting settlement, keep the current negative gearing treatment until they are sold. If you already own an investment property, nothing changes for that property while you hold it. There are also targeted exemptions for widely held trusts, superannuation funds, build-to-rent developments, and investments supporting government housing programs.

The CGT discount is being replaced

The second reform reaches far beyond property. From 1 July 2027, the 50% CGT discount for individuals, trusts, and partnerships will be replaced with cost base indexation (adjusting your cost base for inflation) plus a minimum 30% tax rate on net capital gains for assets held more than 12 months. This applies to all CGT assets, not just real estate, including shares and pre-1985 assets going forward.

The transitional rules protect gains you have already earned. The new regime only applies to gains accruing after 1 July 2027, so gains accrued on existing investments before that date retain the 50% discount regardless of when you eventually sell. For an asset held across the changeover date, your taxable gain is effectively split: the pre-July 2027 portion gets the old discount, and the post-July 2027 portion falls under indexation and the minimum tax.

New build investors receive special treatment. When they sell, they can choose between the existing 50% discount or the new indexation regime, whichever produces the better outcome. The main residence exemption is untouched, superannuation funds are not expected to lose their CGT discount, and income support recipients are exempt from the minimum tax.

What this means for your strategy

The reform creates a genuine two-tier system. Established residential property becomes considerably less attractive as a tax-driven investment, while new builds retain both negative gearing and CGT flexibility. Existing investors face a lock-in incentive to hold rather than sell, since selling ends their grandfathered status. Some investors may look to new builds, subdivisions, or even commercial property, which sits outside the negative gearing restrictions.

For anyone contemplating a property purchase in 2026–27, the key questions are now: is the property an eligible new build, will the numbers stack up without negative gearing against salary, and how will the CGT changes affect the after-tax return over your intended holding period? Trust structures also need review, with a separate 30% minimum tax on discretionary trusts arriving from 1 July 2028 and three years of rollover relief available from 1 July 2027 for restructuring.

Contact us today to review how the 2027 reforms affect your investments before the window for pre-commencement planning closes.

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This article is general information only and does not constitute financial or tax advice. Speak to a registered tax agent about your specific circumstances.