What's Changing and Why It Matters
From 1 July 2027, negative gearing on established investment properties will be restricted to newly constructed dwellings only. The proposed changes sit alongside trust tax and capital gains tax reforms announced in the same budget, and together they reshape the financial case for holding investment property in a trust structure.
These proposals are not yet law, and the information below is general guidance only. You should speak with your adviser before making any decisions about property purchases or trust arrangements.
How Negative Gearing Has Worked Until Now
Negative gearing occurs when your property holding costs exceed the rental income it generates. Those costs include loan interest, council rates, property management fees, repairs, insurance, and depreciation on the building and fixtures. When the total outgoings are greater than the rent collected, you have a loss.
Under the current rules, that loss can be offset against any income you earn, including wages and salary. If you earn $95,000 a year from your job and your investment property makes a $12,000 loss, your taxable income drops to $83,000. The tax saving depends on your marginal rate, but for someone on the 32.5% bracket, that $12,000 loss reduces the tax bill by around $3,900.
This deduction has been available regardless of whether the property was newly built or established, and regardless of whether you held it in your own name, a company, a partnership, or a trust.
What the Government Is Proposing to Change
Under the proposed rules, losses from established residential investment properties will no longer be deductible against wage and salary income. Instead, those losses can only be applied against other residential property income, such as rent from a different property, or against capital gains when you eventually sell a residential property.
If you don't have other property income to offset the loss against, it must be carried forward and used in a future year when you do have property income or a capital gain to apply it to.
The restriction applies to individuals, companies, partnerships, and most trusts. It does not apply to newly constructed residential properties that meet the government's definition of genuinely adding to housing supply.
Call one of our team or book an appointment at a time that works for you. We can help you model your options under the proposed rules and work out whether your current strategy still fits your circumstances.
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The Grandfathering Rules and Why the Cutoff Time Matters
Properties purchased before 7:30pm AEST on 12 May 2026 (Budget night) will remain under the current negative gearing rules until you sell them. The precise time matters. If contracts were exchanged at 7:15pm, the property is grandfathered. If they were exchanged at 7:45pm, it is not.
Properties purchased between 12 May 2026 and 30 June 2027 can be negatively geared against other income until 30 June 2027, but from 1 July 2027 onward, the new rules apply unless the property is a new build.
Properties purchased after 30 June 2027 will be subject to the new rules from the outset, unless they meet the new build criteria.
If you hold property in a discretionary trust and purchased it before Budget night, the trust can continue to distribute losses to beneficiaries who can then offset those losses against their wages, exactly as they do now. That protection lasts until the property is sold.
What Counts as a New Build
A newly constructed dwelling is one that genuinely increases the number of homes available. An apartment bought off the plan qualifies. A house built on previously vacant land qualifies. A duplex constructed through a knock-down rebuild that replaces one dwelling with two also qualifies.
A knock-down rebuild that replaces one house with another single house does not qualify, because it has not increased housing supply.
A newly built property that has been lived in for more than 12 months before being sold to an investor does not qualify. If a developer builds a house, rents it out for 18 months, then sells it to you as an investor, you cannot access the new build concessions.
Once a new build is sold to a second investor, the new build status does not transfer. Only the first purchaser after construction can access the full negative gearing deductions.
How This Interacts With Trust Structures
One of the traditional reasons for holding investment property in a discretionary trust has been the ability to distribute income and losses flexibly among beneficiaries. If the property was negatively geared, the trustee could distribute the loss to a high-income beneficiary who could offset it against their salary.
Under the proposed rules, that advantage disappears for established properties purchased after the grandfathering dates. The loss can still be distributed by the trust, but the beneficiary receiving it can only use it against residential property income or capital gains, not against wages.
For properties held in a trust and purchased before Budget night, nothing changes. The loss continues to flow through to beneficiaries who can use it against any income. That protection remains in place until the property is sold.
Self-managed superannuation funds (SMSFs) are excluded from the negative gearing restrictions entirely. If you hold investment property through an SMSF, the proposed changes do not affect you. The same exclusion applies to widely held trusts, such as most managed investment trusts.
New Builds Versus Established Property Under the Proposed Rules
Consider an investor purchasing an established townhouse after 1 July 2027 and holding it in a family trust. The property costs $480,000, with a loan of $432,000 at current variable rates. Annual interest is around $25,900. Add rates, insurance, property management, and repairs, and total holding costs come to roughly $31,500 a year. Rental income is $23,400. The property is negatively geared by $8,100.
Under the proposed rules, that $8,100 loss cannot be distributed to a beneficiary who earns a salary and used to reduce their taxable income. It can only be used against rent from another property, or carried forward and applied against the capital gain when the townhouse is eventually sold.
If the same investor purchased a newly constructed townhouse in the same price range, the $8,100 loss could still be distributed to a beneficiary and offset against their wages, exactly as it works now. The full deduction remains available because the property qualifies as a new build.
For an investor in the 32.5% tax bracket, that $8,100 loss would have delivered a tax saving of around $2,630 per year under the old rules. Losing that deduction changes the after-tax cost of holding the property by that amount every year until it becomes positively geared.
The financial case for purchasing established property as an investment after 1 July 2027 weakens significantly unless the property is expected to be positively geared from the outset, or unless the investor has other residential property income to offset the loss against.
What You Should Do Before the Rules Change
If you already hold investment property in a trust and purchased it before Budget night, your position is protected. The current negative gearing rules continue to apply until you sell.
If you are considering purchasing an investment property before 30 June 2027, the grandfathering rules mean you will retain access to full negative gearing deductions even after the new rules commence, but only until you sell that property. Once sold, any replacement property will be subject to the new rules unless it is a new build.
If you are weighing up whether to purchase an established property or a new build after 1 July 2027, model both scenarios with realistic holding costs, rental income, and your marginal tax rate. The loss of negative gearing deductions on the established property may be offset by a lower purchase price or stronger capital growth prospects, but you need to see the numbers in your specific situation before committing.
If you hold property through a trust structure, speak with your adviser about whether that structure still makes sense given the combined effect of the proposed negative gearing changes, the trust tax increase, and the capital gains tax adjustments. For some investors, particularly those purchasing new builds or holding property in an SMSF, the trust structure may still work well. For others, it may not.
Call one of our team or book an appointment at a time that works for you. We can help you model your options under the proposed rules and work out whether your current strategy still fits your circumstances.
Frequently Asked Questions
Will negative gearing still be available after 1 July 2027?
Yes, but only for newly constructed residential properties that add to housing supply. Losses from established properties can only be offset against other residential property income or capital gains, not against wages or salary.
Are properties I already own affected by the negative gearing changes?
Properties purchased before 7:30pm AEST on 12 May 2026 are grandfathered under the current rules until you sell them. You can continue to offset losses against any income as you do now.
Does a knock-down rebuild qualify as a new build?
Only if it increases the number of dwellings on the site. A duplex that replaces one house qualifies. A single house that replaces another single house does not.
Do the negative gearing changes apply to property held in a trust?
Yes, the changes apply to most trusts. Losses from established properties can no longer be distributed to beneficiaries to offset against wages. SMSFs and widely held trusts are excluded from the restrictions.
Can I still use negative gearing losses if I hold property in my SMSF?
Yes. Self-managed superannuation funds are excluded from the proposed negative gearing restrictions entirely. The changes do not affect property held through an SMSF.
