- Negative gearing on established properties is proposed to end from 1 July 2027 — but only for properties contracted after 7:30pm on 12 May 2026. Properties contracted before that timestamp keep negative gearing indefinitely.
- Properties contracted between 12 May 2026 and 30 June 2027 keep negative gearing during that transitional window, then lose it from 1 July 2027.
- The 50% CGT discount is proposed to be replaced for the portion of any gain that accrues after 1 July 2027. Pre-2027 gain keeps the 50% discount; post-2027 gain uses inflation-indexed cost base + a minimum 30% tax floor on real gains.
- The post-2027 portion is calculated by establishing the asset’s value at 1 July 2027 (taxpayer valuation or ATO formula), then treating that value as the new cost base.
- New builds keep negative gearing and the 50% CGT discount under the proposed rules — they’re structurally favoured.
- SMSFs are explicitly excluded from the proposed changes per the Treasury factsheet.
- Dollar impact on a $800K established purchase by a 37% marginal-rate investor: −$7,696 / yr less annual tax saving once the reform kicks in (worked below). For long-held properties sold post-2027, CGT can move materially in either direction.
The proposed rules in brief
Two changes were announced on 12 May 2026 affecting Australian property investment tax from 1 July 2027 (if enacted as announced).
Negative gearing change. From 1 July 2027, rental losses on established residential properties contracted after 7:30pm on 12 May 2026 can no longer be deducted against your salary or other non-property income. Losses can only offset rental income from other residential property and capital gains, with excess losses carried forward to future years. New builds are exempt. SMSFs are exempt.
CGT change. For capital gains realised after 1 July 2027 on properties held across the transition date:
- Pre-1-July-2027 portion of the gain: keeps the existing 50% CGT discount.
- Post-1-July-2027 portion: uses inflation-indexed cost base + a minimum effective tax rate of 30% on the real gain.
- The split is calculated using the asset’s value at 1 July 2027 (either taxpayer-obtained valuation, or the ATO’s growth-rate apportionment formula).
These rules are subject to legislation that has not yet been enacted. Until enacted, the rules described are proposed, not current law.
Three contract-date cohorts
The 7:30pm 12 May 2026 timestamp is the load-bearing date. It determines which of three cohorts your property falls into.
12 May 2026
→ 30 Jun 2027
onwards
What counts as a “new build”
The proposed definition is narrower than “anything that’s just been built”:
Qualifies as a new build:
- A newly constructed apartment bought off-the-plan
- Residential construction on previously vacant land
- A duplex built via knock-down rebuild that replaces a single free-standing house (net-adds a dwelling)
Does not qualify:
- An established property extended to add bedrooms
- A knock-down rebuild that replaces one house with another of the same dwelling count
- A granny flat built adjacent to an established property (where the established property isn’t itself NG-eligible)
- A newly built property that’s been occupied for more than 12 months before being sold to an investor
The policy is designed to direct investor capital toward properties that add new dwellings to housing supply, not toward churning existing stock.
Annual loss = $20,800
Offset against salary = $20,800 (full negative gearing still available)
Tax saving = $20,800 × 37%
= $7,696
After-tax holding cost = $20,800 − $7,696
= $13,104
Annual loss = $20,800 Offset against salary = $0 (NG against non-property income removed) Offset against rental = $0 (no other rental income in this example) Carried forward = $20,800 (offsets future rental income / CGT on sale) Tax saving (immediate) = $0 After-tax holding cost = $20,800
Annual loss = $20,800
Offset against salary = $20,800 (grandfathered)
Tax saving = $20,800 × 37%
= $7,696
Net gain = $480,000
50% CGT discount = $480,000 × 50% = $240,000 taxable
Tax at 37% marginal = $240,000 × 37%
= $88,800
Pre-2027 gain = Value at 1 July 2027 − Cost base
= $880,000 − $700,000
= $180,000
50% discount = $90,000 taxable
Tax at 37% marginal = $90,000 × 37%
= $33,300
Effective cost base = $880,000 (value at 1 July 2027)
Sale price (less costs) = $1,200,000 − $20,000 = $1,180,000
Nominal post-2027 gain = $1,180,000 − $880,000
= $300,000
Indexed cost base = $880,000 × (1 + 21.8%)
= $1,071,840
Real gain = $1,180,000 − $1,071,840
= $108,160
Tax at marginal rate = $108,160 × 37% = $40,019
30% floor on real gain = $108,160 × 30% = $32,448
Tax payable (the higher) = $40,019 ← marginal binds; floor doesn't
Total tax under reform = $33,300 (pre-2027) + $40,019 (post-2027)
= $73,319
Reform tax = $73,319
Current law tax = $88,800
Difference = $73,319 − $88,800
= −$15,481 (reform = less tax)
50% discounted gain = $240,000
Tax at 19% marginal = $240,000 × 19%
= $45,600
Pre-2027 portion:
50% discounted gain = $90,000
Tax at 19% = $90,000 × 19%
= $17,100
Post-2027 portion:
Real gain = $108,160 (same as 3A)
Tax at 19% marginal = $108,160 × 19% = $20,550
30% floor on real gain = $108,160 × 30% = $32,448
Tax payable (the higher) = $32,448 ← 30% floor binds
Total tax under reform = $17,100 + $32,448
= $49,548
Reform tax = $49,548
Current law tax = $45,600
Difference = $49,548 − $45,600
= +$3,948 (reform = more tax)
Total NG losses = $32,700
Offset against salary = $32,700 (both properties grandfathered)
Annual tax saving = $32,700 × 37%
= $12,099/yr
Purchase 2022 $720,000 Sale 2035 $1,300,000 Sale costs $25,000 Net gain $555,000 Marginal at sale 37% Hold split: Pre-2027 (5 of 13 yrs) 38.5% of holding period Post-2027 (8 of 13 yrs) 61.5% of holding period Valuation at 1 July 2027 (assumed): $870,000 Pre-2027 gain $870,000 − $720,000 = $150,000 50% discount → $75,000 taxable → $27,750 tax @ 37% Post-2027 gain $1,275,000 − $870,000 = $405,000 Indexed cost base $870,000 × 1.218 = $1,059,660 Real gain $1,275,000 − $1,059,660 = $215,340 Tax at 37% $79,676 30% floor on real gain $215,340 × 30% = $64,602 (not binding) Tax payable $79,676 Total reform tax $27,750 + $79,676 = $107,426 Current law tax $555,000 × 50% × 37% = $102,675 Difference +$4,751 (reform = slightly more tax)
The four worked examples above each modelled a single property — or in Example 4, two properties of the same vintage. Real investor portfolios are messier. An investor with three properties contracted in three different years has:
- Three NG cohorts to track separately — grandfathered, transitional, post-reform.
- Three 1 July 2027 valuations to obtain or estimate.
- Three real-vs-nominal splits at sale.
- Two scenarios per property — 6 full calculations before any decisions.
- Sell-first ordering — which property to sell first if rebalancing?
- Loss absorption — which property's future rent absorbs quarantined losses?
- New-build allocation — is the marginal addition more tax-efficient as a new build?
- Freedom-year recalibration — does the proposed reform shift your target year?
These questions don’t have single right answers in the abstract. They depend on the specific properties, your marginal rate now and at sale, your hold periods, and what you’re optimising (cash flow vs after-tax position vs flexibility). Manual modelling at portfolio scale, across both scenarios, with the 1 July 2027 valuation step applied per property, isn’t realistic for most investors.
Heyward runs all of this automatically on your actual portfolio: every property classified into the right cohort by contract date, every 1 July 2027 split calculated, both scenarios run in parallel, NG quarantine flows tracked across years, and portfolio-level decisions — sell-first ordering, loss absorption, freedom-year delta — surfaced as concrete recommendations. The four worked examples above become your portfolio’s actual numbers.
What’s still uncertain
A few things the announcement and current guidance don’t fully resolve:
Enactment. The reforms are subject to legislation that has not yet been enacted. Until enactment, the rules described here are proposed, not current law. Treat them as a planning scenario, not a guaranteed future state.
CPI methodology. The inflation-indexed CGT discount requires a specific CPI series and quarterly convention to compute in practice. The Budget factsheet is light on technical detail; ATO guidance is expected to fill this in before the proposed 1 July 2027 effective date.
SMSF treatment. Whether the reforms apply differently to SMSF property holdings has not been explicitly addressed in announcement materials. SMSF property investors already operate under different negative gearing mechanics (because of limited recourse borrowing arrangement rules), and bespoke ATO guidance is expected. If you hold property in an SMSF, get advice from an SMSF specialist before making changes.
Contract timing edge cases. Contracts exchanged on or near Budget night that include conditional clauses, sunset dates, or contingent terms have not been explicitly addressed. If your exchange date is anywhere near 12 May 2026, document it precisely — signed contract, broker confirmation, electronic timestamps, all of it.
What to actually do
Universal advice first, then scenario-specific.
Document your contract exchange date precisely. If you exchanged anywhere near 12 May 2026, keep the signed contract, broker confirmation, conveyancer record, and any electronic timestamps. The 7:30pm cutoff is granular, and grandfathering depends on it.
Don’t panic-sell. Selling before 1 July 2027 just to lock in the old CGT discount only makes sense if you were going to sell anyway — for instance, as part of a planned retirement sell-down. Forced selling to avoid a tax change usually destroys more value than the change itself — through transaction costs, lost rental income, and the difficulty of timing re-entry.
Don’t panic-buy. Rushing into an established property purchase to “beat” some perceived deadline is misframed — the 7:30pm 12 May 2026 cutoff has already passed. There is no future deadline that improves your position by buying established stock now.
Re-do your modelling. Whatever spreadsheet you’ve been using to model your portfolio’s after-tax position, run it under both the current rules and the proposed reform. If the answer changes materially, you have a real decision to make. If it doesn’t, you can plan with confidence either way.
Talk to an accountant who’s read the Budget papers, not just the press coverage. The grandfathering specifics, the new-build definition, and the CGT apportionment all involve detail that general accounts have flattened.
Does grandfathering apply if I refinance after 1 July 2027?
Under the proposed rules, yes. Grandfathering is tied to the acquisition of the property, not the financing. Refinancing your loan — including switching lenders, restructuring, or extending the term — would not re-classify the property.
What if my contract exchanged 11 May 2026 but settled 30 May?
Grandfathered under the proposed rules. The cutoff is contract exchange, not settlement. As long as your exchange date and time are documented before 7:30pm 12 May 2026, your property is treated under the existing rules.
Does this affect SMSF property investments?
SMSF-specific treatment hasn’t been explicitly addressed in announcement materials. SMSF investors already operate under different negative gearing mechanics because of LRBA (limited recourse borrowing arrangement) rules, and the ATO is expected to issue bespoke SMSF guidance closer to the proposed 1 July 2027 effective date. If you hold property in an SMSF, get advice from an SMSF specialist before making changes.
What exactly counts as a “new build”?
Under the proposed rules, a newly constructed dwelling that adds to net housing supply. New apartments bought off-the-plan, construction on previously vacant land, and knock-down rebuilds that net-add dwellings (e.g. one house becomes a duplex) qualify. Knock-down rebuilds that replace one house with another house, extensions, granny flats adjacent to non-NG-eligible established properties, and “newly built” properties occupied more than 12 months before sale do not qualify.
Does this affect commercial property?
No. The proposed negative gearing changes apply only to residential property. Commercial property and other asset classes (shares, etc.) remain under existing arrangements.
How are post-2027 losses treated if I can’t use them?
Quarantined losses on post-cutoff established properties can offset rental income from other residential property, capital gains on residential property, or be carried forward to future years and applied against either of the above. Losses don’t disappear — they wait until you have offsetting income or sell.
How will the 30% minimum tax floor work?
A worked example from Treasury (factsheet p.8): an investor with a $10,000 capital gain after 1 July 2027 whose calculated tax would be $1,400 (a 14% effective rate) instead pays $3,000 — an additional $1,600 to lift the effective rate to 30%. The floor applies only when the investor’s marginal-rate-based tax would be below 30%.
When will we know if the reform becomes law?
The legislation is subject to passage through both houses of Parliament and Royal Assent. Until that happens, the rules described are proposed, not current law. The ATO will issue formal implementation guidance once the legislation is enacted.
What does the reform do to your portfolio?
Heyward models both scenarios — current law and proposed reform — and applies the valuation-based CGT split per property, so you can see the exact dollar delta on each of your properties.
- Budget 2026-27 Tax Reform (Treasury)
- Treasury negative gearing & CGT factsheet PDF (8-page authoritative source)
- ATO — Tax reform: negative gearing and capital gains tax
- Federal Budget 2026 reform analysis (Law Society Journal)
- What counts as a new build under the 2026 Federal Budget (Aussie)
- Federal Budget Analysis 2026 — Negative gearing (William Buck)
- Federal Budget 2026 — Property Changes Explained (MCG Quantity Surveyors)