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The 2027 negative gearing changes are now law. What changed for investors, and what is still unsettled?

· Yannick Ieko

The 2027 negative gearing changes are now law. What changed for investors, and what is still unsettled?

Answering: What did Parliament actually pass in June 2026, when does it start, who is left out, and which part of the “new build” test is still open?

Estimated reading time: 14 min read

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is law. It passed both Houses on 25 June 2026 and received Royal Assent on 26 June 2026 as Act No. 49 of 2026. From 1 July 2027 it limits negative gearing for residential property investments to new builds, and it replaces the 50 per cent capital gains tax discount with cost-base indexation and a 30 per cent minimum tax on gains accruing on and after that date, for assets other than new residential dwellings.

If the equity statement is still on the kitchen bench, or the rental statement still shows a shortfall every month, that is the change that matters. The Budget speech is no longer a proposal. The Act is on the Federal Register. What is not finished is the precise definition of a “new residential dwelling”, which is why a purpose-built nine-bed on one title cannot be waved through as exempt. The Harmony Group builds in Melbourne. Our investors come from every state. The team designs that nine-bed for income first. Its tax treatment under the reform is unsettled, which is exactly why the case for it should rest on rent, not on a deduction.

Key Insights

  • The core change is law: Act No. 49 of 2026, Royal Assent 26 June 2026, applying from 1 July 2027.
  • Negative gearing on established residential property acquired after 7:30pm AEST on 12 May 2026 is quarantined from 1 July 2027. Losses can offset residential property income and certain gains, not salary.
  • New builds remain in a separate category. The Act points to that category. The detailed definition went to Treasury’s Tranche 2 consultation and is not yet law.
  • Complying superannuation entities, including SMSFs, and widely held unit trusts are excluded from the negative gearing restriction.
  • A knock-down-rebuild that does not increase supply is not eligible on the Budget fact sheet’s own examples. On the exposure draft as written, a single-title nine-bed would not count as more dwellings; the final definition is not yet law.

Table of Contents

What Parliament passed, and when it starts

The short version is now a matter of record, not a forecast. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 was introduced in the House of Representatives on 28 May 2026. It passed the House on 4 June 2026, passed the Senate on 25 June 2026, and finally passed both Houses on that same day. Royal Assent followed on 26 June 2026. The Act number is 49 of 2026.

Two property schedules inside that Act do the work investors care about. Schedule 2 limits negative gearing for residential property investments to new builds from 1 July 2027. Schedule 1 replaces the 50 per cent CGT discount for individuals, trusts and partnerships with cost-base indexation and a 30 per cent minimum tax rate on capital gains accruing on and after 1 July 2027.

The Act commenced in stages after assent. The negative gearing schedule commenced the day after Royal Assent. It applies to income years commencing on or after 1 July 2027. That distinction matters if someone tells you the rules “already bite” on this year’s return. They do not. They bite from the 2027-28 income year.

Our earlier guide was written while these measures were still moving through the Budget and the Parliament. Since then, a second Act has adjusted the negative gearing rules: the Treasury Laws Amendment (Tax Reform No. 2) Act 2026, Act No. 71 of 2026, assented to on 26 August 2026, with its negative gearing schedule in force from 1 October 2026. What it changes is set out under the acquisition cut-off below.

The acquisition cut-off of 12 May 2026

The restriction does not apply to every established rental in the country. It applies by acquisition time.

The Budget fact sheet and the Act use the same moment: 7:30pm AEST on 12 May 2026, which is also 7.30pm by legal time in the Australian Capital Territory, Budget night. A residential dwelling last acquired before that moment keeps the current negative gearing treatment until it is sold. A contract entered into before that moment, even if it settled later, is treated as acquired before the cut-off.

A residential dwelling acquired after that moment is in the new system from 1 July 2027, unless it is an eligible new residential dwelling. Between exchange and 30 June 2027, an established property bought after Budget night can still be negatively geared in the ordinary way. From 1 July 2027 the net rental loss on that property is quarantined.

Selling a grandfathered property and buying another established dwelling after the cut-off does not carry the old treatment across. Grandfathering attaches to the interest you already held, not to you as a person.

Act No. 71 of 2026 extends that treatment in three cases: a surviving spouse who acquires the interest when the other spouse dies, a surviving co-owner who acquires a deceased co-owner’s interest, and a transfer between spouses or former spouses on relationship breakdown. For a spouse, on death or on relationship breakdown, a dwelling acquired before the Budget-night cut-off, or one that was a new residential dwelling for the person who held it, keeps that status for the person who takes it over. For a co-owner who is not a spouse, the status carries across only if the survivor’s own share also qualified on the same basis.

None of that is a reason to rush a sale. It is a reason to get the exchange date in writing and to stop treating “I have always negatively geared” as a portable right.

How negative gearing actually changes from 1 July 2027

Negative gearing is not abolished. It is narrowed.

From the 2027-28 income year, where deductions on an affected residential dwelling exceed the assessable income from residential dwellings, the excess is a quarantined amount. It is not available to reduce salary, wages, business income, interest or dividends in that year. It can be used against net assessable income from residential dwellings, and it can reduce revenue or capital gains from a residential dwelling. Unused amounts carry forward.

That is the mechanical change. The practical change, for anyone whose investment property currently costs money every month, is that the wage offset that made the shortfall tolerable stops being available on properties caught by the new rule.

New residential dwellings sit outside that quarantine. So do dwellings last acquired before the Budget-night cut-off. Commercial property is outside the restriction altogether. The change is a residential-property rule, not a rule about every geared asset you own.

If you want the investor-level reading of the same facts, the page on what the 2027 changes mean for property investors sets out the three positions: a property held before announcement, an established property bought after announcement, and a purchase you have not made yet.

What changed in capital gains tax

The CGT change is separate from the negative gearing change, and it is easy to mash the two together.

From 1 July 2027, for individuals, trusts and partnerships, the 50 per cent CGT discount is replaced with cost-base indexation and a 30 per cent minimum tax on real capital gains accruing on and after that date. Indexation is calculated using CPI, in the same family of method that applied between 1985 and 1999. The main residence exemption is unchanged. The small business CGT concessions remain, and the Act as passed widened one of them: the Treasurer’s release of 25 June 2026 says the eligible turnover threshold for the 50 per cent active asset concession rose from $2 million to $10 million.

The reform does not tax, at the new rate, every dollar of gain you have already made. Gains accruing before 1 July 2027 keep the current treatment. Gains accruing on and after 1 July 2027 are calculated under the new method, using the asset’s value at 1 July 2027 as the starting point for that later slice. A purchase made before July 2027 does not lose the CGT discount on the gain already accrued to that date.

New residential dwellings are treated differently again. Investors who buy an eligible new build may choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell. Subsequent purchasers of that same dwelling do not keep that choice, and they do not keep negative gearing on that dwelling either. The concession is attached to the new-build event, not to the building in perpetuity.

Who is excluded from the negative gearing restriction

The Budget fact sheet is explicit. Widely held trusts (for example, most managed investment trusts) and superannuation funds, including SMSFs, are excluded from the negative gearing changes.

That exclusion is easy to misread. It does not mean an SMSF trustee should treat the reform as a reason to buy residential property inside super. It means the fact sheet takes superannuation entities out of this particular restriction. Super did get one change of its own in the same Act. Schedule 5, in force from 10 August 2026, amends section 67A of the Superannuation Industry (Supervision) Act 1993 so that a new limited recourse borrowing by a fund for real property must be for business real property. Borrowings entered into before that date, the refinancing of those borrowings, and purchases contracted before that date stay under the old rule.

Private investors who support government housing programs are also described as having further exemptions available. That is a program question, not a nine-bed question.

If the property is held in your own name or an ordinary family trust, assume you are inside the new system unless your adviser shows you an exception that actually fits.

What “new build” means on the fact sheet, and what is still unsettled

This is the part that is still open, and it is the part that decides whether a knock-down-rebuild nine-bed is in or out.

The Act limits negative gearing to new builds. It leaves the detailed meaning of “new residential dwelling” to requirements the Minister determines by legislative instrument. Those requirements must assist the objective of genuinely adding to the supply of residential dwellings in Australia.

The Budget fact sheet already gives the policy shape. New builds are residential properties which genuinely add to supply. That includes dwellings constructed on vacant land, and cases where existing properties are demolished and replaced with a greater number of dwellings. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months. Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible.

Table 2 of the fact sheet is the clearest public example set:

  • Eligible: a duplex constructed through a knock-down rebuild replacing a single free-standing house.
  • Eligible: any residential construction on previously vacant land.
  • Eligible: a newly constructed apartment bought off the plan.
  • Not eligible: a free-standing house constructed through a knock-down rebuild replacing an older, smaller free-standing house.
  • Not eligible: an established property that has recently been extended to add additional bedrooms.
  • Not eligible: a granny flat built adjacent to an established property that is not eligible for negative gearing.
  • Not eligible: a newly built property occupied for more than 12 months before being first sold.

Treasury’s Tranche 2 consultation (Capital Gains Tax and Negative Gearing, consultation c2026-792170) asked for feedback on how to define a new residential dwelling. The consultation closed. An exposure draft instrument was published. No finished instrument is in force, and no later bill settling that definition has been recorded as passed. The exposure draft does speak to this case. Where existing dwellings are replaced, it requires more dwellings on the land than before, and each new dwelling to be a legal interest that someone else could buy independently of the others; Treasury’s explanatory material gives a granny flat without its own title as an example that fails. A nine-bed on one title is a single legal interest, so on the draft as written it would not count as more dwellings. The draft is not law and the final definition may differ, so a nine-bed’s eligibility remains unsettled.

That is the open question. It is not a slogan. It is not something a building classification answers. Class 1b certification is a construction classification. It is not a tax status.

Whether a particular building qualifies depends on the final legislation and your own advice.

What an investor can sensibly do while the definition is settled

You do not need a finished definition to do the useful work.

Confirm the acquisition date of anything you already hold. If there is any doubt about Budget night, get the contract time in writing. Model the property on income rather than on the wage deduction. If the rent does not cover the holding cost without that deduction, the 2027-28 year will show you that in cash, not only in a tax estimate.

If you are deciding whether to keep, sell or replace a property that costs you money every month, walk that decision as a cash decision first. Our page on hold, sell or replace a negatively geared property is written for that choice.

Speak to the people who actually own the pieces. An accountant or tax adviser for the position you are in. A licensed financial adviser for whether a new purchase suits you. A mortgage broker for serviceability once the wage offset is no longer part of the story. None of those conversations is improved by treating an unsettled definition as if it were already a ruling.

The Harmony Group’s team brings 15+ years of specialist accommodation experience. Clients pay Harmony $0. Builders pay the fee at settlement, the same fee across all builders. Co-living investment requires a minimum of $600,000 in cash, usable equity, or a combination of both. None of that converts an open tax question into a closed one. It is the reason the next conversation should be about the building and the rent, not about a deduction that may or may not attach.

Why the case for a nine-bed should rest on income

A Harmony project is one knock-down-rebuild site in Melbourne’s middle ring, on which the team builds one purpose-built dwelling containing nine rooms and nine bathrooms, alongside shared living space. You own the whole building. Nine people live in it, each on their own lease. A specialist property manager runs it. It is not a fund, not a syndicate, and not a share of something.

That shape can produce a different income profile from a standard house let to one household. On the exposure draft as written it would not count as more dwellings, although the final definition is not yet law. Both things can be true at once.

The honest sequence is therefore the other way around from the old negatively geared habit. Start with whether the rent on nine separate leases, after a specialist manager runs the building, is an income stream you actually want while you are still working. Then ask your own adviser whether that building is an eligible new residential dwelling once the final legislation settles the definition. Do not reverse the order. Tax treatment that is still being drafted is a poor reason to buy, and a poor reason to walk away.

Income that arrives while you are still working is the frame that survives either outcome of the definition. The comparison between a negatively geared established house and a property built to pay from rent is set out in positive cashflow versus negative gearing.

Frequently Asked Questions About the 2027 Changes

Q: Are the 2027 negative gearing changes actually law?

Yes. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed both Houses on 25 June 2026 and received Royal Assent on 26 June 2026 as Act No. 49 of 2026. The negative gearing limit to new builds applies from 1 July 2027. The detailed definition of a new residential dwelling is still being settled.

Q: Does a property I already own lose negative gearing on 1 July 2027?

Not if you last acquired it before 7:30pm AEST on 12 May 2026. Those interests keep the current treatment until they are sold. An established dwelling acquired after that moment is quarantined from 1 July 2027. Confirm the contract time with your adviser rather than relying on settlement day.

Q: Do new builds still get negative gearing?

As a category, yes. Net rental losses on an eligible new residential dwelling can still be deducted against other assessable income. The Act creates that category. Which buildings fall inside it depends on the final legislation and your own advice.

Q: Is a nine-bed knock-down-rebuild a new build for this reform?

That is unsettled. The fact sheet says a knock-down-rebuild must increase supply, and it gives a duplex replacing a house as eligible and a larger house replacing a smaller house as not eligible. On the exposure draft as written, a single-title nine-bed would not count as more dwellings. The final definition is not yet law, so eligibility remains unsettled. It is not answered by Class 1b certification.

Q: Do these changes apply to property held in an SMSF?

The Budget fact sheet excludes superannuation funds, including SMSFs, from the negative gearing restriction. Separately, the same Act changed the SMSF borrowing rules from 10 August 2026: a new limited recourse borrowing for real property must be for business real property. Borrowings, refinancing and purchases contracted before that date keep the old treatment.

Learn how the law fits an income-first building, before you talk to anyone

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Citations

General information only. The Harmony Group provides general information about property and co-living investment, not personal financial, tax or legal advice, and does not hold an Australian Financial Services Licence (AFSL). It does not account for your objectives, financial situation or needs, so consider its appropriateness and seek advice from a licensed financial adviser, mortgage broker, accountant or the ATO before acting. Past performance is not a guide to future results and historical figures may not be repeated. The 2027 negative gearing reform was enacted on 26 June 2026 and applies from 1 July 2027. The definition of a new residential dwelling is still being settled after Treasury’s consultation, so whether a nine-bed is an eligible new build remains unsettled. Other tax or regulatory measures described are subject to change.