The 2026 federal budget removed negative gearing from established residential properties and kept it exclusively for new builds. If you’re looking at your next investment property, that one change will influence your tax position, borrowing power, and long-term returns.
Here at the Australian Business Magazine, we’ve been tracking these negative gearing changes since budget night. We’ve reviewed the ATO guidance, the budget papers, and how major banks have already responded to this policy reform.
In this guide, we’ll cover:
- Why new builds got a full carve-out from the reforms
- What qualifies as a new build property
- The tax deductions new build investors keep
- How borrowing power has already shifted
- Whether existing properties are protected
- What this means for the property market
Read on to see exactly how these reforms will affect your next property decision.
Why Do New Properties Benefit Under These Rules?
New properties benefit because the 2026 federal budget kept full negative gearing, the 50% CGT discount, and all depreciation deductions exclusively for new builds. Unfortunately, established residential properties lost every one of those advantages.
So if you’re an investor weighing up your next move, the negative gearing rules now strongly favour new builds over existing properties.
Let’s get into why the government set things up this way.
The Government Wants More Housing Supply
Australia is well behind its 1.2 million homes target, and the government needs investors to help close that gap. The National Housing Accord set that target back in 2023, but residential construction hasn’t kept pace.
At the current build rate, the country is on track to fall roughly 262,000 homes short by June 2029. In response, the government is trying to steer investor money toward new housing supply rather than established properties.
Removing negative gearing from existing homes is part of that strategy. The reforms make established properties less attractive to investors while preserving the tax benefits for new builds.
So, if investors want the full tax benefits, they’ll need to back housing that adds to supply.
New Builds Were Deliberately Excluded
The government excluded new builds from every restriction to direct private investment toward new housing construction.
New property negative gearing still works the same way it always has. That means you can still claim full tax deductions, access the 50% capital gains tax discount, and write off depreciation from day one.
The unchanged tax treatment was intentional. As mentioned earlier, the government left the incentives for new builds in place to encourage investors to put their money into new housing rather than existing properties.
And no other asset class got this level of protection under the reforms. Shares, commercial property, and other investments all face different rules now, and new builds now sit in a category of their own.
Expert Tip: Don’t judge a new build solely by its depreciation schedule. Assess vacancy rates, local supply pipelines, and long-term growth prospects before committing.
What Changed for Negative Gearing in the Budget?
The 2026 federal budget restricted negative gearing for established residential properties purchased after 7:30 pm on 12 May 2026. If you’re buying after that date, it’s important to understand how the new rules affect your investment.
Here are the five biggest negative gearing changes from the budget:
- Budget Night Cut-Off Date: The deadline is 7:30 pm AEST on 12 May 2026. Any investment property purchased after that moment falls under the new rules, regardless of the settlement date.
- Negative Gearing Now Restricted: From 1 July 2027, only new builds will keep full negative gearing access. Established property buyers can still claim deductions, but only against other residential rental income or future capital gains from rental properties.
- Salary Offset Removed: Your net rental loss can’t reduce your salary or wages income anymore. Many investors used that annual tax refund to lower their income tax bill before, but that option has disappeared for established properties bought after budget night.
- Net Rental Loss Carried Forward: Instead of losing those deductions entirely, you carry them forward. The Australian Taxation Office (ATO) lets you offset them against future rental income or apply them when you sell the property, which means the deductions are just delayed rather than gone.
- Capital Gains Tax Discount Replaced: The old 50% CGT discount is being swapped for cost base indexation and a 30% minimum tax rate from 1 July 2027. However, new build investors can still choose between the old discount and the new system.
Each of these changes will shift investor behaviour towards new builds by giving them a stronger tax advantage over established properties.
What Qualifies as a New Build Property?
A new build refers to a property that adds to the housing supply and hasn’t been previously sold or occupied for more than 12 months. But a home isn’t automatically eligible just because it’s newly constructed, so it’s important to understand exactly which properties qualify.
The table below shows how different property types are categorised under the new rules:
| Property Type | Qualifies? | Reason |
| Off-the-plan apartment | Yes | Not previously sold or occupied |
| House and land on vacant land | Yes | Adds new housing supply |
| Duplex replacing a single house | Yes | Net increase in dwellings |
| Knock-down rebuild, same count | No | No net increase in supply |
| Granny flat on existing property | No | Attached to an established dwelling |
| Renovated or extended home | No | Does not add a new supply |
| New build occupied 12+ months | No | Treated as established |
As you can see, a property only qualifies as a new build if it adds to the housing supply. If it doesn’t create at least one additional dwelling, it won’t meet the government’s definition.
And the 12-month period often surprises investors. Let’s say a developer builds a new apartment, lives in it for 14 months, and then sells it to an investor. That property is now treated as established. The investor won’t get negative gearing or the 50% capital gains tax discount (even though the building is practically brand new).
That’s why, before signing anything, you should talk to a registered tax agent. The difference between qualifying and not qualifying could cost you thousands in lost tax deductions each year.
Tax Advantages for New Build Investors
The 2026 reforms left the main tax advantages for new builds unchanged, like the full negative gearing and deductible interest costs against salary income. That puts new build buyers in a completely different tax position from anyone purchasing established stock.
The most important tax advantages include:
- Full Negative Gearing Access: If your rental income falls short of your expenses, you can still offset that loss against your salary, wages, or other income. Established property buyers will lose this benefit from July 2027.
- No Quarantining of Losses: Your deductions aren’t locked into a property-only bucket anymore. Unlike established stock, where losses can only reduce residential rental income or future capital gains, new build losses flow across all your income sources. That’s a huge cash flow difference at tax time.
- 50% Capital Gain Discount Option: When you sell your property, you get to choose between the old 50% CGT discount or the new cost base indexation method. Established property investors don’t get that choice after 1 July 2027.
- Capital Works Deductions at 2.5%: The ATO lets you claim 2.5% of your building’s construction cost every year for 40 years. On a $400,000 build, that’s $10,000 in annual deductions without any additional outlay.
- Full Plant and Equipment Claims: Brand-new fittings like air conditioning, carpets, and appliances will all get claimed at full value from the settlement day. But buyers of second-hand residential properties will only be able to claim items they personally purchase and install.
- Interest-Only Loan Strategy: Many investors use interest-only loans to maximise their interest expenses as tax deductions. This strategy still works exactly as it did for new builds before the budget. The full interest cost remains deductible against your rental income.
Tax is only one part of the equation. The reforms also changed how lenders calculate borrowing capacity, which gives new-build investors another advantage.
How Do the New Rules Affect Borrowing Power?
The new rules reduce borrowing power by 10 to 20% for investors buying established properties, while new-build buyers keep their full lending capacity. Those lending changes are already in effect at many major banks.
To understand the difference, you need to look at how banks assess loan applications.
Banks Removed Add-Backs for Established Stock
Most investors don’t realise that banks have already changed their lending calculators, months before the July 2027 start date. CBA, NAB, ANZ, and Macquarie all updated their serviceability models within weeks of the budget.
Before the reforms, lenders included your expected negative gearing tax refund when calculating your borrowing capacity.
However, since that add-back no longer applies to established properties purchased after budget night, many investors now have lower borrowing limits. So even if you can comfortably afford the repayments, your bank might disagree with you.
Bottom Line: Being able to afford a property and being able to finance it are no longer the same thing.
New Builds Keep Full Serviceability Benefits
When you buy a new build, your lender can still count the expected negative gearing tax refund as income when assessing your borrowing capacity. As a result, new build investors continue to benefit from the same lending treatment that applied before the reforms.
In practice, this difference can have a major impact on loan approvals. Two investors with the same income can apply at the same bank and receive different borrowing limits because the investor buying a new build is likely to qualify for a larger loan.
And honestly, that gap will only grow as more lenders update their calculators over the coming months. This lending difference alone could tip the decision toward a new build for many investors (especially if you’re buying for the long term).
Are Existing Residential Properties Protected?
Yes, existing residential properties held before 7:30 pm on 12 May 2026 are fully grandfathered under the old negative gearing rules. If you already own an established investment property, there’s no immediate need to make changes. The current tax treatment will stay the same until you sell.
The budget included several protections for investors who already own property:
- Pre-Budget Property Grandfathering: Every investment property you owned on budget night keeps full negative gearing access. You can continue to offset rental losses against your salary, wages, and other income for as long as you hold it.
- Under Contract Not Settled: If you signed a contract before 12 May 2026 but settled after that date, you’re still covered. The ATO treats these properties as if they were purchased before the reforms, so the old rules continue to apply.
- Positively Geared Turning Negative: Some properties that were positively geared on budget night may turn negatively geared later due to rising interest costs or falling rent. Those assets will still qualify for the full offset against your other income.
- Self-Managed Super Funds (SMSFs) and Managed Trusts: Superannuation funds and widely held trusts sit outside these reforms entirely. If you hold residential property through an SMSF, the negative gearing changes don’t apply to you at all.
- Build-to-Rent Exemptions: Approved build-to-rent developments will also keep full access to negative gearing and tax deductions. Since the government wants to increase rental housing supply, it excluded these projects from the new restrictions.
If you fall into any of these categories, your existing investments are safe. But it’s still worth reviewing your position with a financial planner, especially if you’re thinking about buying your next property under the new rules.
What Does This Mean for the Property Market?
The property market will see investor demand shift away from established homes and toward new residential construction. As more investors change their buying decisions, the effects will extend beyond the investment market to first-home buyers, tenants, and developers.
The following are some of the ways these reforms are expected to affect the property market.
Why New Construction Wins Over Investors
Investors who move into new builds early could benefit from less competition and stronger depreciation claims before the market catches up. The tax advantages are simply too large to ignore now.
And under the new property tax policy, new builds retain full negative gearing, the 50% CGT discount, and complete depreciation access. Because these tax concessions are restricted for established properties, new builds offer a more attractive tax position for investors.
That’s why residential construction activity is expected to pick up as more investor money flows into new housing.
Rental returns on new builds could improve, too. Tenants now tend to prefer modern layouts, better energy ratings, and lower maintenance costs (particularly with rising power bills).
Less Competition for First Home Buyers
The government estimates these reforms will help an additional 75,000 Australians buy their own home over the next decade. That estimate comes from Treasury modelling published in the 2026-27 Federal Budget.
The logic behind this idea is that fewer investors chasing established properties means less bidding pressure at auctions. For example, a first home buyer in Western Sydney or outer Melbourne won’t be competing against as many investors for the same entry-level house.
Plus, market conditions for affordable established homes could soften in some capital cities. Still, it’ll take time for these effects to show up in actual sale prices.
The Decline in Existing Home Sales
Grandfathered investors have more to lose by selling than they did before the reforms. Because the old negative gearing rules can’t be regained after a sale, many investors may choose to hold their properties for longer.
That could reduce the number of established rental properties coming onto the market. And this lock-in effect actually creates an interesting tension.
At the same time, it’ll reduce the number of homes available for first-home buyers to purchase from existing landlords. Rent prices in established areas could stay firm for tenants as a result of this situation.
Economic Perspective: Markets work best when assets can move freely. Any policy that discourages selling can reduce that flexibility.
Should You Buy a New Investment Property Now?
A new investment property makes sense if you’re a higher-income earner chasing long-term capital growth with full tax deductions. But the tax perks alone shouldn’t influence your decision. The property itself still needs to stand on its own merits.
You should think these through before committing:
- When New Builds Suit You: Investors in higher income tax brackets will get the most value from negative gearing. For instance, a $15,000 net rental loss will save you $7,050 at the 47% marginal rate. At the 32.5% rate, that same loss will only save $4,875.
- Risks With Residential Construction: New builds also carry extra risks. Like, construction delays can postpone settlement, building costs can exceed your budget, and weaker market conditions before completion can leave your property worth less than you paid.
- Running the Numbers First: Don’t buy a property based on tax benefits alone. Model your total costs, rental return, and expected capital growth with and without the deductions. If the property only works because of negative gearing, it’s probably not a strong enough investment.
- Getting Advice From a Tax Agent: Every investor’s situation is different, so it’s worth getting personalised advice. A registered tax agent or financial planner can explain how these reforms affect your taxable income, borrowing power, and long-term investment strategy.
Ultimately, the investors who understand the new framework will be better equipped to identify opportunities as the market adjusts.
Time to Rethink Your Property Strategy
The 2026 federal budget drew a hard line between new builds and established residential properties. If you’re buying new, you keep full negative gearing, the 50% CGT discount, complete depreciation, and stronger borrowing power.
But if you’re buying an established property, you’ll lose most of those advantages from July 2027. That makes the choice between a new build and an established property much more important.
Whatever you decide to do, don’t forget to talk to a registered tax agent or financial planner who understands these reforms inside out. You can also explore more property investment guides on our site to stay up to date with the latest changes.
Frequently Asked Questions (FAQs)
Still have questions about the 2026 negative gearing reforms? Below are answers to some of the most common questions investors ask about property tax, gearing strategies, and investment decisions.
Can You Have a Positively Geared Property and Still Pay Tax?
Yes. A positively geared property produces a net profit after expenses. Since you’ve received additional income, you’ll generally pay tax on those earnings at your marginal tax rate.
Does Capital Gains Tax Apply if You Reinvest the Money?
Yes. Reinvesting the sale proceeds doesn’t automatically remove your Capital Gains Tax obligation. The tax outcome depends on your gain, ownership period, and the rules in place when you sell.
Should Positive or Negative Gearing Influence Your Investment Strategy?
It can influence your approach, but it shouldn’t drive every decision. Most experienced investors focus on sustainable cash flow, long-term growth, and whether the property aligns with their financial goals.
Can Two Investors Pay Different Amounts of Tax on the Same Property?
Yes. Personal income, ownership structure, and deductible expenses can all affect the final tax outcome, even when two investors own similar properties.
Are Residential Property Investments Suitable for Every Investor?
No. Residential property investments can offer long-term growth and rental income, but they also involve ongoing costs, market risk, and financing commitments. Before you invest, make sure the strategy aligns with your financial goals and risk tolerance.
Can a Property Become Positively Geared Over Time?
Yes. Rising rents, lower interest costs, or paying down debt can improve cash flow. A negatively geared property can eventually transition to positive gearing as income increases or expenses fall.
