Negative gearing and CGT have changed: what first-time investors need to know

For two decades, "negative gearing" has been the default tax story told to new property investors: the property runs at a loss, the loss reduces your taxable income, and capital growth does the heavy lifting. That story has now formally changed. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, introduced with the 2026–27 Federal Budget, has passed both houses and received royal assent, with the new rules taking effect from 1 July 2027. And if you're buying your first investment property, you're in the group most affected, because the grandfathering that protects existing investors doesn't cover you.

The two dates that matter

Negative gearing: what actually changed

Under the old rules, if your investment property's deductible costs (loan interest, management fees, rates, insurance, depreciation) exceeded its rent, the shortfall reduced your taxable income, including your salary. A $10,000 rental loss meant roughly $3,000–$4,500 back at tax time for a middle-income earner.

Under the new rules, for an established residential property acquired after the 12 May 2026 cut-off, that net rental loss can no longer be deducted against income that isn't rental income or gains from rental property. The loss doesn't vanish. It's quarantined: it carries forward and can offset rental income and rental-property gains, just not your wages this year.

• Bought (contract signed) before 7:30pm AEST 12 May 2026: old rules continue while you hold the property
• Established property bought after the cut-off: rental losses quarantined to rental income and rental-property gains
• Eligible new builds are exempt: losses remain deductible against other income, including salary

A worked example

Say a first-time investor buys a unit for $650,000, renting at $550/week (about $28,600 a year), with deductible costs of about $36,600 a year (mostly loan interest, plus management, rates and insurance). That's a net rental loss of $8,000.

The CGT change: discount out, indexation in

From 1 July 2027, the 50% CGT discount for assets held over 12 months is replaced by two mechanisms: your cost base is indexed for inflation (so you're only taxed on real gains, not inflationary ones), and a 30% minimum tax applies to net capital gains. Transitional rules mean gains that accrued before 1 July 2027 remain subject to the current discount treatment, and pre-1985 assets stay exempt for that period.

One notable wrinkle for first-time investors weighing a new build: investors in new residential property can choose between the existing CGT discount and the new regime when they sell, whichever works out better. That choice, on top of the negative gearing exemption, is a deliberate policy tilt towards new housing supply.

What this means if you're buying your first investment property

1. Cash flow is now the first number to run

The tax refund that used to soften a negatively geared established property is gone for new purchases. The weekly holding cost is now the true, undiscounted cost, so a property that pays for itself (or close to it) is worth relatively more than it used to be. Work the holding position out before you fall in love with a property: our guide to the real costs of buying an investment property covers what to include.

2. New builds got a structural tax advantage

Exempt from loss-quarantining, plus a choice of CGT treatment on sale. That doesn't automatically make a new build the right buy. Location, quality and price still dominate returns, and new property carries its own risks. But the tax gap between new and established is now real, and should be priced into your comparison.

3. Loan structure matters more, not less

With less tax subsidy on losses, the case for minimising interest costs strengthens, which changes the sums on interest-only vs principal & interest, offset strategy and rate. The structure decisions we help with are exactly where the post-reform savings live. If you're weighing how to hold the property, our Trust vs Company calculator models the after-tax difference between the two on the same numbers, then confirm the treatment with a registered tax agent.

4. Strategies like rentvesting still work: the maths just changed

Rentvesting has always been more about affordability than tax, so the reform leaves its core logic intact. But a rentvestor buying established property should now target properties closer to neutral or positive gearing, or weigh the new-build exemption.

5. Don't make a tax-driven panic purchase

The negative gearing cut-off has already passed, so there is no window to beat on that front. Rushing to buy anything before 1 July 2027 purely for CGT reasons is the kind of emotion-led decision we list in the classic first-investor mistakes. Buy when the numbers and the property are right.

What the reform doesn't change

• Deductions against rental income itself: costs still offset the rent the property earns
• Borrowing rules: lenders' assessment of your income, deposit and buffer is unchanged by this bill
• Existing investors' grandfathered properties: old rules continue while they hold
• The fundamentals: rental demand, location quality and buying well still decide most of the outcome

Frequently asked questions

Sources

• ATO Tax reform: Boosting home ownership, reforming negative gearing and capital gains tax
• Budget 2026–27: Tax reform, including the negative gearing & CGT fact sheet
• Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 (Cth), introduced 28 May 2026