Negative Gearing Reform Budget 2026: What Changed at 7:30 PM AEST by Purchase Date

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

At 7:30 PM AEST on Tuesday 12 May 2026, the Federal Budget reformed negative gearing for residential property investors. It is no longer a Budget announcement — it is enacted law. Section 26-155 of the ITAA 1997 was inserted by Schedule 2 to the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026, royal assent 26 June 2026), and extended by Schedule 4 to the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 (Act No. 71 of 2026, royal assent 26 August 2026).

The new rules bite from 1 July 2027 — the 2027-28 income year. But the date that decides which set of rules applies to a property is 7:30 PM AEST on 12 May 2026, and that line is already behind us: what matters now is which side of it each property you own sits on, and whether anything you buy between now and 30 June 2027 lands in the transitional bucket.

The reform is structured around four buckets, sorted by when you bought (or buy) the property. Most existing investors are completely unaffected.

The four buckets

The cutoff applies to the date the property was acquired. If you signed an unconditional contract before 7:30 PM AEST 12 May 2026 but settle later, you are still in Bucket A.

What counts as a “new build”

A new build is one that genuinely adds to housing supply. Treasury’s eligibility table:

The subsequent-purchaser rule

If you buy a “new build” from a previous investor (not the builder), the property loses its new-build status for you. You inherit the established-property rules.

Treasury draws the analogy to first-home-buyer stamp duty concessions — the new-build benefit is once-only, attached to the first investor purchase, not the property itself.

Mechanics of the loss carry-forward

For Buckets B (from 1 July 2027) and C, excess rental losses don’t disappear — they carry forward indefinitely against other residential property income, including future positive net rent on the same property and any future capital gains realised on a residential investment property.

What changes is what you can offset against. Under current rules, a $14,810 rental loss on a $1M property (Treasury’s example figure — roughly matching the actual $14,390 average negative-gearing loss in 2022-23 for someone in the top tax bracket) saves $6,961 in tax for a $210k earner because the full loss reduces taxable income. Under the new rules for Bucket C, that same loss can only be applied against residential property income — so it carries forward until the investor has positive net rent or sells.

Who is excluded

The negative gearing changes do NOT apply to:

• Widely held trusts (most managed investment trusts)
• Superannuation funds including SMSFs
• Commercial property of any kind
• Other asset classes — shares, business income, etc. (these are unchanged)

The changes apply to individuals, partnerships, companies, and most other (non-widely-held) trusts holding residential investment property.

What happens when the property changes hands without being sold

Which bucket you are in turns on when you acquired your ownership interest. Read literally, that meant a death in the family, a property settlement, or simply moving out of your own home could knock a property out of Bucket A and into Bucket C — not because anyone bought or sold anything, but because the tax law treats those events as a fresh acquisition on a date after Budget night.

Parliament closed that off after the reform was legislated. Schedule 4 to the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 (Act No. 71 of 2026), royal assent 26 August 2026, inserted sections 26-156 to 26-159 and new subsections 26-155(3AA) and (3AB) into the Income Tax Assessment Act 1997. The amendments apply in relation to the 2027-28 income year and later — the same year the quarantine itself starts.

These rules are relieving only. They decide which bucket you land in; they do not change what a bucket does.

Your spouse dies and you take their share

You keep the grandfathering. If your deceased spouse acquired their ownership interest before 7:30 PM AEST 12 May 2026, section 26-156(2) treats you as having acquired the interest you take from them before that time too — whether it comes to you as surviving joint tenant or as a beneficiary of their estate. If the dwelling was a new residential dwelling in relation to your spouse just before they died, section 26-156(3) makes it a new residential dwelling in relation to you for the interest you acquire.

The Act has to say this in as many words, because without it the answer would have been no: subsections 128-15(2) and 128-50(2) time your acquisition of a deceased person’s asset at the date of death, which is a date after Budget night. Section 26-156(4) directs you to disregard exactly those timing rules for this purpose.

A co-owner who is not your spouse dies

Same continuity — but read the test before you rely on it, because this is the one place where the intuitive answer is wrong.

Section 26-157(2) is conjunctive. It carries the pre-Budget-night acquisition time across to the interest you inherit only if both of these are true:

• you acquired your own existing ownership interest before 7:30 PM AEST 12 May 2026; and
• the deceased co-owner had also acquired their interest before that time.

Section 26-157(3) does the same job for new-build status, and it is conjunctive in the same way: the dwelling must have been a new residential dwelling in relation to both of you.

So two siblings who bought a rental together in 2019 pass grandfathering to each other. But a sibling who bought in 2019 and inherits the other half from a co-owner who bought into the property in 2028 gets nothing from this section on the half they inherit. Grandfathering is not a property of the dwelling — each ownership interest is tested on its own, and continuity only passes where both sides of the transfer already had it.

The section applies to joint tenants and tenants in common alike, and it works whether the interest reaches you by survivorship or under the deceased’s will.

You take the property in a divorce or separation settlement

You step into the transferor’s status. Section 26-158 applies where you acquire an ownership interest in a residential dwelling from your spouse or former spouse — or from a company or trustee — as a result of an order, agreement or award of a kind mentioned in paragraphs 126-5(1)(a) to (f). That is the trigger list for Subdivision 126-A of the ITAA 1997, the ordinary CGT rollover for marriage or relationship breakdowns.

If the transferor acquired the interest before Budget night, you are taken to have acquired it before Budget night (section 26-158(2)). If the dwelling was a new residential dwelling in relation to the transferor, it is one in relation to you (section 26-158(3)).

The practical point is that the section is keyed to the instrument, not to the separation. It is the court order, the consent order, the formal agreement or the award that pulls you into section 26-158, so if you are dividing property, the paperwork you sign is the thing that decides whether the grandfathering follows the house.

You move out of your own home and rent it out

This is the largest of the four in practice, and it is not an inheritance case at all.

Section 118-192 of the ITAA 1997 is the “special rule for first use to produce income”: when you first start renting out a dwelling that had been your main residence, subsection (2) treats you as having acquired it at its market value at that moment. Left alone, that deemed acquisition date is today — so moving out of a house you bought in 2019 and putting a tenant in it would have dropped it straight into Bucket C.

New subsection 26-155(3AA) says to disregard section 118-192(2) when working out when you last acquired the ownership interest, and new subsection 26-155(3AB) says to disregard it when working out whether the dwelling is a new residential dwelling in relation to you. Your real purchase date is what counts. A pre-Budget-night home you convert to a rental stays in Bucket A.

This sits alongside, and does not disturb, the six-year rule for a former main residence, which is a CGT main-residence-exemption rule rather than a negative gearing one.

The CGT side follows too

Do not read sections 26-156 to 26-158 as loss-quarantining rules only.

Section 26-159 provides that where a dwelling is taken to be a new residential dwelling in relation to you under section 26-156(3), 26-157(3) or 26-158(3), it is also taken to be one for the purposes of subsection 115-102(2) — which is on the CGT side of the reform, not the deductions side. Two consequences follow from the Act’s own wording:

• Section 115-102 is the provision that keeps a 50% discount available for a new residential dwelling for CGT events on or after 1 July 2027, with cost base indexation available instead if you choose under section 115-102(5) for the discount not to apply.
• Section 119-5(2)(b) excludes a gain that section 115-102 applies to from the 30% minimum tax on capital gains.

So an inherited or settlement-transferred new dwelling carries its CGT treatment across with it, not just its deduction treatment. A reader who has just been told the loss rule follows would reasonably assume the discount rule does not. It does.

Worked examples (from the Treasury explainer)

Michael — Bucket A (existing investor)

Michael owned an investment property purchased before 12 May 2026 that is negatively geared. He can continue to negatively gear against his salary in future years.

Michael sells the property two years after the policy commences for $560,000. Treasury notes:

• Michael still receives the 50% CGT discount for the portion of the gain accrued between purchase and 1 July 2027.
• The portion of the gain after 1 July 2027 uses the new indexation + 30% minimum tax rules (see CGT discount reform).
• Using ATO tools, the property’s value at 1 July 2027 was $500,000. With two years of 2.5% inflation, his taxable gain after 1 July 2027 is $34,688.
• At a 47% tax rate, total tax on the post-1 July 2027 gain is $16,303 (vs $14,100 under the old 50% discount). Net additional tax: $2,203.

Yoonseo — Bucket B (bought after the cutoff)

Yoonseo earns $100,000 and buys an established residential property for $519,000 (including stamp duty) after 12 May 2026 7:30 PM. She rents it out and sells it 10 years later for $814,447.

• Over the first 5 years she has net rental losses totalling $22,879, which become carry-forward losses (she cannot offset against her $100,000 salary).
• In years 6–10 she applies most of these carry-forward losses to reduce her positive net rent over those years from $18,079 to zero.
• When she sells, she uses the remaining carry-forward losses to reduce her real capital gain from $150,083 to $145,284.
• Overall, she pays $186 more in nominal tax over the investment compared to the old rules.

Had Yoonseo bought a new build instead, she would not pay additional tax — negative gearing and the 50% CGT discount would still be available for that property.

How this affects your EOFY planning

If you already held the property at 7:30 PM AEST 12 May 2026 (Bucket A): Nothing changes for that property, for as long as you hold it. Continue claiming negative gearing as normal — your 2025-26 and 2026-27 returns are unaffected, and so is every return after them. A signed but unsettled contract from before the cutoff counts, and so does converting your own home to a rental afterwards (see the continuity rules above).

If you bought after the cutoff, or buy before 1 July 2027 (Bucket B): You can still negatively gear normally against any income, but only to 30 June 2027 — the rest of the 2026-27 income year, and no further. From the 2027-28 income year the loss becomes a carry-forward. The transitional window has now largely run: model both the remaining months under the current rules and the carry-forward case over the full hold before you commit to a purchase this year.

If you are looking at buying 1 July 2027+ (Bucket C / D): Consider whether the property qualifies as a new build (vacant land, off-the-plan, eligible knock-down rebuild). Established property purchases past 1 July 2027 only make sense if cash flow is positive, the carryforward strategy aligns with your timeline, or capital growth substantially outweighs the loss of immediate deductibility.

The Negative Gearing Calculator and Investment Property Calculator let you model both scenarios side-by-side.

Treasury impact figures

• Around 1% of taxfilers acquire negatively geared properties each year (230,000 individuals in 2022–23).
• Around 7% of taxfilers report a net capital gain each year (1.1 million individuals).
• Treasury modelling: 75,000 additional owner-occupiers over the next decade (equivalent to reversing 10 years of declining home ownership rates).
• Expected impact on house prices: ~2% lower over a couple of years vs no policy change.
• Expected impact on rents: less than $2/week increase on median rent.

Sources

• Treasury Budget Paper No. 1, Statement 4: Tax reform for workers, businesses and future generations (12 May 2026)
• Treasury fact sheet: Negative Gearing and Capital Gains Tax Reform (12 May 2026)
• Treasury Budget Paper No. 2, Tax Reform — Boosting Home Ownership measure (p21)
• Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026), Schedule 2 — the negative gearing rule itself (s 26-155), and Schedule 1 (ss 115-102, 119-5): APH bill page
• Treasury Laws Amendment (Tax Reform No. 2) Act 2026 (Act No. 71 of 2026), Schedule 4 — Negative gearing amendments (ss 26-155(3AA)/(3AB), 26-156 to 26-159); royal assent 26 August 2026: APH bill page

Related reading

• 50% CGT Discount Reform: Cost Base Indexation Explained — paired CGT changes that affect every property sale from 1 July 2027.
• CGT Discount Senate Inquiry — Now Enacted Reform — pre-Budget context and post-Budget outcome.
• Budget 2026 Explained: Winners and Losers — full Budget breakdown by persona.
• How Budget 2026 Changes Your EOFY Plan — EOFY 2026 and 2027 implications.
• The Six-Year Rule for a Former Main Residence — what happens on the CGT side when you move out and rent out the home you bought.
• CGT Reform Passed: What the Final Law Says — the record of what Acts 49, 50 and 71 actually enacted.