Established dwellings bought after 12 May 2026 lose negative gearing from 1 July 2027. New builds keep both the deduction and the 50% CGT discount

This article is general information only. It does not consider your personal circumstances and is not tax, credit or investment advice. The measures below are announced law scheduled to commence on 1 July 2027 and remain subject to the parliamentary process. Speak to a registered tax agent, licensed conveyancer, property lawyer or licensed financial adviser before acting on any of the figures.

The 12 May 2026 cutoff sits four months behind us#

On the evening of Tuesday 12 May 2026, the Treasurer handed down the 2026-27 Federal Budget. The property investment measures inside that Budget took immediate effect on the contract date test, meaning any contract of purchase signed after 7:30pm AEST on 12 May 2026 for an established residential dwelling now sits inside the new regime (Budget 2026-27, Tax reform).

The regime itself does not switch on until 1 July 2027. That is the point at which two things happen at once. First, negative gearing on any post-cutoff established residential dwelling changes shape: rental losses can no longer be offset against salary, wages or other income, and instead can only reduce residential rental income or residential property capital gains, with any excess carried forward. Second, the 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation, and a 30% minimum tax rate applies to real capital gains regardless of the taxpayer's marginal rate (ATO, Tax reform - Boosting home ownership).

The gap between contract-date effect (12 May 2026) and regime start (1 July 2027) is deliberate. It gives Treasury and the ATO time to finalise legislation, guidance and technical rulings before the first affected tax return is lodged for the 2027-28 income year. It also creates a fourteen-month window in which post-cutoff established dwelling buyers are already inside the new rules but do not feel them yet on their tax return.

What "new build" actually keeps#

The exemption for new builds is the design feature that reprices the two halves of the residential investment market against each other.

A new build under the proposed rules is a newly constructed residential dwelling that has not previously been occupied, plus a dwelling created through substantial renovations that materially change the character of the building (Baker McKenzie, Budget Bites - CGT Discount and Negative Gearing). Off-the-plan apartment purchases where the buyer takes first possession, and house-and-land packages where the dwelling has not been lived in before, both sit inside the definition on the current guidance.

A landlord buying a resale on a house completed in 2024 and lived in by the first owner is buying an established dwelling for these purposes, even though the physical building is only two years old. The tax status attaches to the dwelling's occupancy history, not its construction date.

That distinction is the one that reprices the buyer pool for existing new-build stock that is now on its second sale. It also expands the value of the depreciation schedule on any new build, because Division 43 capital works and Division 40 plant and equipment deductions now sit inside a tax profile that also keeps the salary offset and the 50% CGT discount (Duo Tax, Federal Budget 2026 - Tax Depreciation and CGT Valuations). The two systems compound.

The 50% CGT discount is gone from 1 July 2027#

The second half of the package is the CGT overhaul.

For CGT events occurring after 1 July 2027, individuals, trusts and partnerships lose the 50% CGT discount that has stood since 21 September 1999. In its place, the pre-1999 style of cost base indexation returns. The elements of the cost base (other than the third element of ownership costs such as interest and council rates) are indexed upward by the movement in the ABS Consumer Price Index between acquisition and the CGT event, and tax applies to the real capital gain rather than the full nominal gain.

On top of the indexed real gain, a 30% minimum tax rate applies for CGT events after 1 July 2027 regardless of the taxpayer's marginal rate for the income year (Budget 2026-27, Tax reform). The 30% floor is what removes the low-marginal-rate arbitrage that the current 50% discount allowed for low-income spouses, SMSFs in accumulation, and some family trust structures.

For new build investment properties, the choice remains open: an investor can elect either the 50% discount or the indexation method, whichever gives the lower tax outcome for that particular disposal. That optionality is worth real money over a 10 to 20 year hold, because different combinations of inflation and price growth favour different methods.

For established dwellings acquired after 12 May 2026, that choice is not available. The indexation method plus the 30% floor is the only path, and the loss of the salary offset from the same 1 July 2027 date is layered on top.

What a grandfathered landlord now holds#

The grandfathering rule is what turns 12 May 2026 into a scarcity date.

Every established residential dwelling that was owned at 7:30pm AEST on 12 May 2026, including properties where a contract of purchase had been signed but had not yet settled, retains the current negative gearing rules and the 50% CGT discount for the life of the current owner's holding (Budget 2026-27, Tax reform). That grandfathered status stays intact through refinances, tenant changes and even major renovations, provided the underlying legal title has not changed hands.

The exemption ends at disposal. When a grandfathered investor sells, any replacement established dwelling they acquire is a post-cutoff asset. That asymmetry is the single most important design feature of the package for a landlord planning a portfolio move over the next five years. A sale of a grandfathered established dwelling is a one-way door: the tax profile does not follow the investor into their next purchase unless the replacement is a new build.

Practically, that means a grandfathered established dwelling now trades at a small implicit tax premium to a physically identical post-cutoff dwelling on the same street. The premium is not visible in an agent's listing price, because both dwellings still list at the same market value. It shows up in the buyer pool. Any buyer for whom the salary offset materially closes the cash flow gap will pay closer to the ask on a grandfathered property, because the same offset is unavailable on the post-cutoff alternative. In markets where negatively geared investors are the marginal buyer (parts of Sydney, Melbourne inner-ring and premium Brisbane), the pool narrows.

The arithmetic on a $700,000 Brisbane investor#

Consider two identical Brisbane investor properties both listed at $700,000 with a 90% loan-to-value ratio and a 6.5% investor interest rate. Both rent for $620 a week, or roughly $32,240 gross a year.

Interest on the $630,000 loan at 6.5% is about $40,950 a year. Add council rates, insurance, agent fees, repairs and depreciation at roughly $14,000 a year, and total deductible expenses land near $54,950. Net rental loss before depreciation adjustments: approximately $22,710 a year in the first year of ownership.

Under the pre-cutoff regime (grandfathered), an investor on a 37% marginal tax rate offsets that $22,710 loss against their salary and receives a tax refund benefit of about $8,403 a year. On a 45% marginal rate, the refund benefit lifts to about $10,220 a year.

Under the post-12 May 2026 regime for the same established dwelling, the $22,710 loss cannot touch salary. If the investor does not hold other residential rental income, the loss is quarantined and carried forward against future rental income or a future residential property capital gain. The immediate tax refund on salary is zero. The loss still has value, but only when a future gain or a future rental profit exists to absorb it, which for a single-property investor may not be for a decade or more.

On the same $700,000 buy structured as a new build (off-the-plan or completed but never occupied), the salary offset stays available. The tax refund benefit runs alongside a fresh depreciation schedule where Division 43 capital works claims typically peak in the first year at 2.5% per year of the construction cost for the effective life of the structure (ATO, Capital works deductions), plus Division 40 plant and equipment write-offs on new fixtures. The net cash flow gap between the two buys, once tax refunds are included, can easily run to $8,000 to $12,000 a year for a middle-marginal-rate investor.

That gap is not marginal. Over a five-year hold, it compounds to $40,000 to $60,000 of after-tax cash flow difference, before any consideration of the CGT outcome at sale.

The parallel foreign investor ban extension#

The same Budget also extended the temporary ban on foreign purchases of established dwellings by 2 years and 3 months, taking the ban's end date from 31 March 2027 to 30 June 2029 (Foreign Investment Review Board, Changes to foreign purchases of established dwellings). New dwellings and vacant residential land remain available to foreign investors with FIRB approval.

Treasury's public consultation on conditions attached to existing foreign approvals runs from 19 August to 15 September 2026, closing in two days. Feedback from that consultation will feed into the operational settings of the ban and the wider FIRB conditions regime. For a domestic landlord, the practical consequence is that the buyer pool for established stock has been tightened on two sides at once: post-cutoff domestic investors lose the salary offset, and foreign investors are locked out entirely from the same category of dwelling until mid-2029.

For new builds, the opposite is true. Domestic investors still get negative gearing and the 50% CGT discount option, and foreign investors still have FIRB access to new stock. The two-tier market design is coherent from a supply policy perspective, but the tax and buyer-pool implications for existing landlords are asymmetric.

The industry response#

Property Investment Professionals of Australia (PIPA) chair Cate Bakos flagged the risk of a fresh round of investor sell-offs squeezing rental supply, and the Real Estate Institute of Australia (REIA) said the package would add to supply constraints and lift pressure on rental affordability (PIPA, Federal Budget 2026 key changes affecting the property investment sector).

The more interesting read is what has happened in the four months since Budget night: investor loan commitments fell 10.2% by value and 8.6% by number in the June quarter 2026 on the ABS Lending Indicators, the sharpest quarterly fall since September quarter 2022 and consistent with a market pausing to digest the new tax profile. At the same time, Cotality's August 2026 Home Value Index recorded a fifth consecutive monthly fall in national dwelling values, with Sydney's gross rental yield of 3.3% the lowest of the major capitals.

Four moves this week#

Four practical moves for a landlord reading this today.

One, file evidence of grandfathered status for every property in your portfolio. That means a copy of the contract of purchase, settlement statement, bank guarantee and any deposit bond, filed with your registered tax agent along with a covering note that records the acquisition date and time. Grandfathered status is provable only if the paperwork survives.

Two, if you are actively considering a purchase between now and the 1 July 2027 start date, model the numbers on both an established dwelling and a comparable new build using the Propkt mortgage calculator. Include the loss of salary offset for the established buy, the depreciation schedule benefit for the new build, and the CGT method choice at year-ten disposal for both.

Three, commission a market valuation dated close to 1 July 2027 for every property you plan to hold past that date. A valuation at that transition point is the evidence base for electing between the ATO's specified apportionment formula and the market-value method when you eventually sell (Duo Tax, The 30% Minimum CGT Rule). You cannot reconstruct that valuation accurately after the fact, and the tax bill on disposal turns on it.

Four, if a fixed investor rate rolls before 1 July 2027, book the refinance conversation this month. Retention teams still hold discretion inside the current mid-2026 rate war, and pricing on grandfathered investor loans has not repriced yet against the new regime. That window narrows as the 29 September RBA cash rate decision approaches. Track your loan schedule, expenses and CGT paperwork through Propkt's property management tools so the tax agent conversation in July 2028 runs off clean numbers rather than a shoebox of receipts.

The Budget package is announced law scheduled to start on 1 July 2027, and there is still a parliamentary process to run. The 12 May 2026 cutoff, though, has already happened. Every day since has quietly repriced established residential stock against new builds, and the market is still working through where the new equilibrium sits.