Negative gearing ends for established property in July 2027 but new builds keep it. What does that mean for an investor deciding now?

Answering: Negative gearing ends for established property in July 2027 but new builds keep it. What does that mean for an investor deciding now?

Estimated reading time: 13 min read

Negative gearing on established residential property bought after 7:30pm AEST on 12 May 2026 is set to end from 1 July 2027, with rental losses quarantined to property income rather than deducted against your wage. An eligible new build sits on the other side of that line and keeps both negative gearing and a choice of capital gains tax treatment, a distinction the Budget draws deliberately rather than as an afterthought. The Harmony Group brings team experience spanning more than 200 high-yield and specialist accommodation projects to a purpose-built nine-bed knock-down-rebuild designed to earn from settlement rather than lean on a tax offset in the first place; whether that property meets the reform’s own test for an eligible new build is a genuine open question, and depends on the final legislation and your own adviser’s reading of your circumstances.

If you are holding an established property that costs you money every month, or you are about to sign a contract on one, it is fair to feel the ground has shifted under a plan that depended on that annual deduction. The change removes a lever a lot of portfolios were built around, and it does so on a fixed date that is now less than a year away.

What this means for you depends on three things: when you bought, or will buy, what you buy, and whether the property was ever going to work without the tax offset.

Key Insights

• Whether a build qualifies for the new-build exemption turns on the Government’s own test, a residential property that genuinely adds to supply, which for a knock-down rebuild means demolishing and replacing with a greater number of dwellings, not simply being newly constructed.
• Property held before 7:30pm AEST on 12 May 2026, including anything under contract and awaiting settlement, is grandfathered and keeps negative gearing until it is sold.
• An eligible new build keeps negative gearing plus a choice between the existing 50 per cent CGT discount and the new inflation-linked method; established property does not get that choice.

Table of Contents

• What Changes for Established Property, and When
• What Happens to Property You Already Own
• The New-Build Exemption and the CGT Discount Choice
• Why a Cashflow-Positive New Build Does Not Need the Offset
• Deciding What to Do Before July 2027

What Changes for Established Property, and When

The 2026-27 Federal Budget draws the line at 7:30pm AEST on 12 May 2026, the moment the measure was announced. Established residential property purchased after that time can still be negatively geared until 30 June 2027, a transitional window of a little over a year. From 1 July 2027, rental losses on that property can only be deducted against residential property income, not against your salary or other income, and whatever is left over carries forward rather than disappearing.

New builds are carved out of the restriction entirely. An investor who buys an eligible new build after Budget night keeps negative gearing against other income, with no 30 June 2027 deadline attached to that entitlement. That is the detail that changes the calculus for anyone still deciding what to buy: the purchase date matters for established property, but for a new build it does not remove the deduction at all. Two dates do the practical work here: check the purchase date, or expected settlement, of any established property against the 7:30pm, 12 May 2026 cut-off, and treat 1 July 2027 as the date quarantining starts, not the date the property was bought.

What Happens to Property You Already Own

If you owned a residential investment property, or held a contract to buy one, at 7:30pm on 12 May 2026, it is grandfathered. You keep negative gearing under the current rules for as long as you hold that property, and nothing about the 1 July 2027 start date changes that. The grandfathering runs with your holding of that property, so it stays in place while you keep holding, but it ends the day you sell.

The distinction that trips people up is the difference between exchange and settlement. A property under contract but not yet settled at the cut-off is treated as held at that time and grandfathered; a contract exchanged after that moment is treated as a new purchase, even if the property itself is an older established home. If you are mid-transaction around the cut-off, that timing is worth confirming in writing with your conveyancer or accountant rather than assuming either way.

• Get grandfathered status confirmed in writing if there is any doubt about the exchange date.
• Remember grandfathering ends on sale, so selling and rebuying another established property after 12 May 2026 does not carry the old rules across.
• Factor the loss of grandfathering into any decision to sell and rebuy.

The New-Build Exemption and the CGT Discount Choice

New builds get two things established property does not: continued negative gearing, and a choice of capital gains tax treatment when they eventually sell. From 1 July 2027 the government is replacing the 50 per cent CGT discount with a method based on inflation and a minimum 30 per cent tax, but only on the gain that accrues from 1 July 2027; the 50 per cent discount still covers whatever gain built up before it. For most investors, the move to the new method for that later gain is automatic. For an investor in an eligible new build, it is optional: they can keep using the existing 50 per cent discount, or elect into the new indexation method, whichever produces the better outcome for their situation.

Your position	CGT treatment from 1 July 2027	Negative gearing
Property held before 12 May 2026 (grandfathered)	The reform applies only to gains accruing after 1 July 2027, so the 50 per cent discount still covers the gain built up to that date; gains after it move to indexation and the minimum 30 per cent tax, using the property’s 1 July 2027 value as the cost base (Budget fact sheet).	Continues under current rules until sold.
Established property bought after 12 May 2026	The reform applies only to gains accruing after 1 July 2027, so the 50 per cent discount still covers the gain built up to that date; gains after it move to indexation and the minimum 30 per cent tax, using the property’s 1 July 2027 value as the cost base (Budget fact sheet). No choice of method for gains after 1 July 2027.	Quarantined to property income from 1 July 2027.
Eligible new build bought after 12 May 2026	Choice: existing 50 per cent discount, or the new indexation method.	Continues against other income. No quarantine.

The choice matters because the two methods suit different situations. Indexation reduces the taxable gain by inflation before the minimum 30 per cent rate applies, so it wins when inflation is a large share of the gain, that is, when the real return is low. The Budget fact sheet’s own twenty-year averages show the CPI discount on a house at 42 per cent over five years and 36 per cent over ten, both below the flat 50 per cent, and its worked examples show a 2.5 per cent annual return leaving no taxable gain under indexation while a 7.5 per cent return costs materially more. A new-build owner is not locked into one outcome; they can compare the two methods against their expected rate of return relative to inflation over their holding period before they sell, something an owner of established property purchased after Budget night no longer gets to do. Where the split applies, the property’s value at 1 July 2027, the boundary between the old and new treatment, is set either by a formal valuation as at that date or by a specified ATO apportionment formula that estimates it from the asset’s growth rate over the holding period, with the ATO providing tools to help work it out. A property held inside an SMSF is excluded from this reform entirely and sits under a separate set of superannuation rules again, which is why we cover that ground on its own in our guide to whether co-living suits an SMSF. Model both CGT methods against your expected rate of return relative to inflation over your holding period rather than assuming the old discount wins, and ask an SMSF specialist separately if the property will sit inside super.

Why a Cashflow-Positive New Build Does Not Need the Offset

Negative gearing exists to make an annual loss more bearable. Whether a nine-bed co-living knock-down-rebuild counts as an eligible new build for that exemption turns on a specific, published test, not on a general description of “newly built”. The Government’s own Budget fact sheet on the reform states that new builds are “residential properties which genuinely add to supply”, including “where existing properties are demolished and replaced with a greater number of dwellings”, and that “knock-down rebuilds or substantial renovations that do not increase supply will not be eligible.” The fact sheet’s own comparison table gives the worked examples: a duplex constructed through a knock-down rebuild replacing a single, free-standing house qualifies; a free-standing house constructed through a knock-down rebuild replacing an older, smaller free-standing house does not. William Buck’s Budget analysis reads the line the same way. The fact sheet sets a second limb too, directly relevant to a property bought from a builder: “a new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.” A nine-bed co-living property sits on a single title: nine self-contained suites replacing one established house. Whether that counts as “a greater number of dwellings” under the fact sheet’s test is not settled either way; it is a genuinely open question for your own adviser, and it depends on the final legislation and your circumstances. What makes the property a different proposition regardless of how that question lands is that it is designed not to run at a loss in the first place. On The Harmony Group’s most recent projects, a nine-bed property with nine rooms and nine bathrooms lets for an average of $382.50 a room a week, shown rounded to around $380. That reconciles exactly against the annual figure: $382.50 x 9 rooms x 52 weeks = $179,010 in gross annual rental income, against a base project cost of $1,574,000, or $1,650,250 including additional considerations, a gross yield of 11.36 per cent. Average figures based on most recent projects. That compares with a standard investment property at the same $1.5 million price letting for around $865 a week, or $45,000 a year, a 3 per cent yield. Average figures based on most recent projects.

Across The Harmony Group’s delivered projects, the historical average gross yield has been 10.8 per cent, a separate, longer-run figure that should not be read as the same number as the 11.36 per cent set above. On the team’s own data, 93 per cent of properties have historically met or exceeded their projected income. The property itself is single storey, nine rooms and nine bathrooms including two executive rooms, backed by a seven-year structural guarantee, selected through the 118-point method before it is built and let under specialist management. The Harmony Group calls that combination, nine bed, high-end, good location, established area, The Harmony Formula: the 118-point method sets the location, the Build Formula governs the build, and the figures above are the result. The investor pays The Harmony Group nothing for that process; The Harmony Group is paid by the builder at settlement, the same rate across its panel, so the fee does not steer which build gets recommended. A minimum of $600,000 in cash, usable equity, or a combination of both is the entry point; our usable equity calculator is a starting point for working out how much of that you already have.

The Harmony Group builds in Melbourne, in the middle ring plus Frankston and a smaller area around Geelong, where a nine-bed property does not need special planning approval. Investors come from every state and the process runs remotely, so being interstate is not, on its own, a reason this does not apply to you. A genuinely purpose-built new build is not an existing house reconfigured, and Class 1B certification is a separate building-classification matter, distinct from the new-build tax test above. Ask for income and yield figures that are labelled and dated, not a single headline number, and judge the property on whether it produces income from settlement, with the tax treatment as a second factor, not the first.

Deciding What to Do Before July 2027

Where you land depends on which of three positions you are in. If you already own the property, grandfathering protects you and the timeline above does not apply to you unless you sell. If you are mid-decision on an established property, the transitional window to 30 June 2027 is a fixed deadline, not a moving target, so model the quarantined-loss scenario before you sign rather than after. If you are choosing between an established property and a new build, the CGT choice and the continued deduction both sit with the new build, and the sharper question is not “what is the tax benefit” but “does this property need the tax benefit to work.”

That last question is the one an honest conversation should start with. The Harmony Group’s team applies a 118-point method to each site and declines around 85 per cent of what it assesses, and if a nine-bed co-living property is not suitable for your situation, an honest strategy session will say so rather than sell it to you anyway.

The 2027 changes reward property that is new, not property that is old, and reward income that arrives at settlement over a deduction claimed at tax time. Established property purchased after 12 May 2026 loses the wage offset from 1 July 2027; property held before that moment keeps it until sold; and an eligible new build keeps both the deduction and a genuine choice on capital gains tax. Because the legislation is not yet passed, treat this as the current, announced position.

For a deeper look at the reform itself, our detailed guide to what the 2027 negative-gearing changes mean for property investors walks through investor positions in more depth.

FAQs: What Investors Are Asking About the 2027 Changes

Q: Does the new-build exemption apply to a co-living property?

A: The published test, from the Government’s own Budget fact sheet, turns on whether the build is “demolished and replaced with a greater number of dwellings”, not on how many bedrooms sit inside one dwelling: a duplex replacing a single house qualifies, a free-standing house rebuilt to replace an older, smaller free-standing house does not, because “knock-down rebuilds or substantial renovations that do not increase supply will not be eligible.” A nine-bed co-living property sits on a single title: nine self-contained suites replacing one established house. Whether that counts as a greater number of dwellings under the test is unresolved either way, a genuinely open question for your own adviser; it depends on the final legislation and your circumstances, not on a simple yes or no. An existing house reconfigured into shared living is not a new build, whichever way that single-title question is finally settled.

Q: I already own a negatively geared property. Do I need to do anything before 1 July 2027?

A: If you held the property, or a contract to buy it, at 7:30pm AEST on 12 May 2026, it is grandfathered and keeps negative gearing under current rules for as long as you hold it. Your negative gearing is untouched, but 1 July 2027 is still a date that matters to you, because it splits your capital gain. The 50 per cent discount covers the gain to that date and indexation with the 30 per cent minimum tax covers the gain after it, and you will need the property’s value at 1 July 2027 when you eventually sell, set either by a valuation as at that date or by the ATO’s apportionment formula. If you are not certain of your exchange date around the cut-off, confirm it in writing with your accountant.

Q: Can I choose between the old 50 per cent CGT discount and the new indexation method?

A: Only if the property is an eligible new build. Established property purchased after 12 May 2026 keeps the 50 per cent discount on whatever gain built up before 1 July 2027, then moves to the new inflation-linked method for gains accruing from that date, with a minimum 30 per cent tax on those later gains and no choice of method. An eligible new-build owner can elect either the existing 50 per cent discount or the new indexation method for the property, whichever suits them, when they eventually sell.

Q: Is a co-living property held inside an SMSF treated the same way?

A: No, not directly. The Government’s own Budget fact sheet states the changes “will apply to individuals, partnerships, companies and most trusts” and that “superannuation funds (including SMSFs) will be excluded.” A property bought inside an SMSF sits outside this reform’s negative gearing and CGT changes altogether, and instead answers to your fund’s own borrowing structure and compliance rules, a separate question we cover in our guide to whether co-living suits an SMSF. This is the announced position, not yet law, so confirm the current treatment of your own fund with your SMSF adviser before acting.

Want to Learn More?

The Harmony Group’s team brings 15 years of specialist experience, spanning more than 200 high-yield and specialist accommodation projects. The approach stays educators-first: clear mechanics, an honest read of where a property sits within the exemption rather than a sales pitch built on the exemption itself, and a bias toward property built to earn from day one.

Citations

• “Negative Gearing and Capital Gains Tax Reform” (Budget fact sheet): States new builds must add “a greater number of dwellings” to qualify, sets the split-gain CGT rule for assets owned before 1 July 2027, and excludes SMSFs. https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf
• “Tax reform | Budget 2026-27”: The Australian Government’s Budget confirms the 7:30pm, 12 May 2026 cut-off, the 1 July 2027 start, that losses on established property purchased after that time are quarantined to property income, that new builds keep negative gearing and a CGT discount choice, and the replacement of the 50 per cent CGT discount with an inflation-based method and minimum 30 per cent tax. https://budget.gov.au/content/04-tax-reform.htm
• “Federal Budget 2026-27: Negative gearing”: Pitcher Partners confirms the transitional window to 30 June 2027 for established property purchased after Budget night, the grandfathering of property held (including under contract) at 7:30pm on 12 May 2026, and that new builds retain negative gearing with a choice between the 50 per cent discount and the new indexation and minimum 30 per cent tax method. https://www.pitcher.com.au/insights/federal-budget-2026-27-negative-gearing/
• “Federal Budget Analysis 2026 | Negative gearing”: William Buck confirms established-property negative gearing is abolished for post-12-May-2026 purchases from 1 July 2027, that grandfathered owners keep current rules until sale, and that eligible new builds keep both negative gearing and the existing 50 per cent CGT discount. https://williambuck.com/tools/federal-budget-2026/negative-gearing/

These are announced Budget measures, not yet passed into law, so the detail can change before 1 July 2027.

Related Reading: The 2027 Reform, Cashflow and New-Build Rules

• Positive cashflow vs negative gearing after 2026: which strategy holds up?
• Negative gearing is changing: what is the positive-cashflow alternative?
• What is a positive-geared property, and how do you find one?
• Is co-living a good fit for an SMSF in 2026?
• How does Class 1B certification change the risk of a co-living investment?

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, accountant or the ATO before acting. Past performance is not a guide to future results and historical figures may not be repeated. Any tax or regulatory measures described are announced rather than enacted and are subject to change.