Negative gearing changes: what's grandfathered, what's quarantined and why new builds win

Negative gearing hasn't been abolished. It's been fenced in. For most investors who already owned property on Budget night, nothing changes. For anyone who has bought an established house or unit since, or plans to, the tax refund that used to make the numbers work stops on 1 July 2027.

This guide explains exactly who is affected, how the quarantine works, how it interacts with the CGT changes, and how to compare a new build with an established property before you buy. Status is as at 18 October 2026.

What are the negative gearing changes?

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which is law:

• From the 2027–28 income year, a net rental loss on a residential property is quarantined if you acquired it after 7.30 pm (Canberra time) on 12 May 2026 and it isn't an eligible new residential dwelling.
• Quarantined losses can only be deducted against residential property income and gains: rent from other residential properties, and capital gains on residential property. They can't reduce tax on your salary, business income, dividends or interest.
• Unused losses carry forward to future years. You don't lose them; you lose the timing.

Before the changes, a $15,000 net rental loss for someone on the 30% bracket meant about $4,800 back at tax time (30% plus 2% Medicare levy). Under the quarantine, that refund doesn't come until you have residential income or a residential gain to use the loss against.

Who keeps negative gearing?

Continuity rules: death, separation and your former home

The Treasury Laws Amendment (Tax Reform No. 2) Act 2026, also law, stops some ordinary life events from resetting the date:

• Surviving spouse. If you inherit your spouse's interest, you take their acquisition date and new-build status.
• Deceased co-owner. The same applies for a co-owner who isn't a spouse, if you both acquired before the Budget night cut-off and both interests met the test.
• Relationship breakdown. A transfer between spouses on separation keeps the transferor's date and status.
• Your former home. When you move out and rent your home, the tax law treats it as reacquired at market value for CGT purposes. That deemed reacquisition is ignored for negative gearing, so a home bought before Budget night stays grandfathered.

What counts as a new build?

This is the question that decides most purchases from here on. The detailed definition of "new residential dwelling" is still being finalised, so treat the table below as the intended scope, not settled law. The Government's Budget explainer describes it like this:

The last row matters. New-build status belongs to the first buyer. If you buy a two-year-old townhouse from its first owner, you're buying an established property for these rules.

Exemptions from the negative gearing limits have also been proposed for affordable and public housing, specialist disability accommodation, retirement village operators, residential aged care and build-to-rent developments. Again, proposed only.

Watch out: Until the new-build definition is final, borderline cases (for example, a house-and-land package where the land settles first, or a dual occupancy that replaces a single dwelling) carry risk. Get the contract structure and the build sequence reviewed before you sign.

How do the negative gearing changes interact with CGT?

Three ways.

1. Quarantined losses reduce residential capital gains. When you sell a residential property, carried-forward losses are applied against the capital gain. The Government's Budget explainer works through a 10-year example in which the extra tax over the whole investment is small, because the losses eventually offset rent and then the gain. The cost of the quarantine is mostly timing and cash flow, not lost deductions, but that depends on the property's rent growing and on a gain at the end.
2. New builds keep a choice of the 50% CGT discount. Owners of eligible new residential dwellings can choose to keep the 50% discount on the whole gain instead of indexation and the 30% minimum tax. Established property bought after 1 July 2027 is under indexation from the start. See the CGT discount changes.
3. Loss ordering on sale. From 1 July 2027, the CGT calculation applies losses to deferred pre-2027 gains first, with residential and non-residential gains tracked separately. Sell two properties in the same year and the order matters.

New build or established: which should I buy?

There's no general answer, only the numbers. This is the comparison we run for clients before they sign.

Worked example: same salary, two purchases

Hypothetical, rounded, ignores depreciation and land tax.

Priya earns $140,000. She's comparing a $700,000 established unit with a $720,000 new townhouse bought from the builder. Both would make a net rental loss of about $15,000 a year for the first few years.

The new build costs Priya about $5,850 a year less in cash while the losses last. The established unit might still be the better investment if it grows faster or rents better. But she now has to fund the full loss from her own pocket. Our loan calculator agent tests whether a client can still afford the repayments without the tax refund; an accountant reviews the assumptions with them before any offer is made.

What if the property is held in a family trust, company or SMSF?

The structure changes the answer more than most investors expect.

• Family trusts. A discretionary trust is covered by the quarantine. Before the changes, a trust's rental loss was already trapped inside the trust (trusts can't distribute losses), so the practical change is smaller: the trust's quarantined residential losses can only be used against its residential income and gains. If the trust also earns business income or dividends, those can no longer absorb a loss from an established home bought after Budget night. Our guide to the family trust explained covers how trust losses work generally.
• Companies. Also covered. A company holding an established home bought after Budget night can't use the loss against its trading profit.
• SMSFs. Super funds are carved out of the quarantine. But since 10 August 2026, an SMSF can't take out new limited recourse borrowing for residential property, so geared residential purchases in super are largely closed off. Ungeared purchases are still possible within the fund's investment strategy and the related-party rules. See our guide to SMSF property. Whether an SMSF should buy property is a decision for a licensed financial adviser; we handle the tax and compliance side.
• Joint names. Each owner's share is tested by their own acquisition date. If one spouse bought in before Budget night and the other's interest was added later, the shares can be treated differently.

Should I sell a property I bought after Budget night?

Not automatically. The quarantine defers deductions; it doesn't cancel them. Selling an established property you bought in the last year or two means stamp duty already paid is lost, agent and legal fees on the way out, and possibly a capital gain or loss.

Ask three questions first:

1. Can you fund the loss without the refund? If yes, the losses build up and later reduce tax on rent and the eventual gain.
2. Do you own, or plan to own, other residential property with positive income? Quarantined losses can be used against it, so the refund may come sooner than you think.
3. Is the property still a good investment on its own merits? Rent, growth and condition matter more than the tax timing.

If the answer to the first question is no, talk to us and your lender before you're under pressure. Our capital gains tax advice team models a sale against holding, including CGT under the old and new rules.

What should property investors do before 30 June 2027?

1. Tag every property. For each one, record the contract date and whether it was new when you bought it. Grandfathered, new build or quarantined.
2. Keep the proof. The signed contract with its date, not just the settlement statement. For new builds, the builder's contract, certificate of occupancy and evidence you're the first owner.
3. Value what you hold. Every property you or your family trust own on 1 July 2027 gets a deemed sale for CGT (company-held property isn't rebased). A valuation, or evidence for the apportionment method, protects the 50% discount on growth to that date.
4. Rework cash flow. If you've bought since Budget night, your 2027–28 PAYG withholding variation (if you have one) will need changing. Budget for the loss in full.
5. Think before restructuring ownership. Transferring a property between entities or family members after Budget night generally counts as a new acquisition, except the continuity cases above. A transfer also brings stamp duty. See our page on state taxes.
6. Review deductions. Quarantined or not, every deduction still needs to be right. Our guide to rental property tax deductions covers interest, repairs and depreciation.

Common mistakes with the new rules

• Assuming "bought before 2027" means grandfathered. The cut-off was Budget night, 12 May 2026, not 1 July 2027.
• Assuming any new property is a new build. Only the first buyer gets the status, and the definition is still being finalised.
• Forgetting family trusts and companies are covered. Only super funds and widely held trusts are carved out.
• Using settlement dates. For a purchase, acquisition is usually the contract date.
• Ignoring land tax. A property that no longer produces a refund still attracts state land tax every year.

We work with property investors at every stage, from purchase modelling to annual returns. See how we help property investors, or read the wider 30 June 2027 tax changes guide.

General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.