From 1 July 2027, the rules around negative gearing on residential investment properties are changing. If you own an established residential investment property and it runs at a loss, you will no longer be able to offset that loss against your salary or business income. The loss is quarantined and can only be used against rental income or capital gains from residential property.
New builds are exempt from this change. Established properties already under contract before 7:30pm AEST on 12 May 2026 are fully protected.
This change has two distinct effects for construction business owners: one as a property investor, and one as a builder or developer. Both are worth understanding.
Negative gearing is when your investment property costs more to own and run each year than it earns in rent. That shortfall is currently a tax deduction, reducing your taxable income from other sources like your salary or your business profits.
From 1 July 2027, for established residential properties acquired after 12 May 2026, that deduction goes away. The loss still exists, but it sits in a separate bucket and can only be applied against:
The losses are not gone. They are just deferred. You still get the benefit eventually, but not in the year the loss is incurred. For an investor on a high income, the difference between claiming a loss this year versus in five years when the property sells are significant in practical terms.
If you buy a newly constructed property, the negative gearing rules stay exactly as they are today. You can still offset the losses against all your other income. This is the most important part of the measure for residential builders and developers.
If the contract was signed before the Treasurer stood up to deliver the Budget, the property operates under the old rules for as long as you own it.
Large-scale residential rental developments are being preserved, consistent with the Government’s existing policy direction on build-to-rent.
These operate under different rules and are not directly affected.
The mechanism is still being defined, but the intent is to preserve the after-tax case for investors supporting social and affordable housing.
A worked example
You buy an established residential investment property in August 2026 for $750,000. The rent covers most of the costs, but after interest, depreciation, rates and management fees, you are running a $20,000 annual loss.
Under the current rules, that $20,000 reduces your taxable income this year. If you are a high-income earner, the tax saving in your hand is meaningful, and it compounds year after year while you hold the property.
Under the new rules, that $20,000 sits in the quarantine bucket. You cannot use it against your income from your business or your salary. It rolls forward until you have enough rental income or a capital gain to absorb it, which for many properties is only at the point of sale.
Now consider the same investor buying a new build instead. Nothing changes. The $20,000 loss is still fully deductible against all income. That is the policy intent: redirect investor demand from established stock to new construction.
The negative gearing change has two distinct effects for our client base, and they pull in different directions.
If you own established residential investment properties, check the contract dates. Anything signed before 7:30pm AEST on 12 May 2026 is untouched. Anything acquired after that point under the new rules will have its loss treatment change from 1 July 2027. The investment may still make sense over the long run, but the cash flow profile during the holding period changes, particularly in the early years.
The new-build exemption is a structural advantage for your sector. Investor demand should shift toward new construction as the established market loses its tax advantage. For residential builders, the question is how to position your product, pricing and sales channels to capture investor demand alongside the owner-occupier market. This is a genuine opportunity that the sector has not seen in this form for decades.
If you hold residential investment property inside a discretionary trust, the negative gearing change and the trust changes interact. Losses from established property are quarantined from 1 July 2027, and the trust’s income carries the 30 per cent minimum tax from 1 July 2028. The two measures need to be looked at together, not separately.
If you signed a contract to purchase an established residential property before 7:30pm AEST on 12 May 2026 and have not yet settled, you are grandfathered. The protection is tied to the contract date, not the settlement date.
This is worth confirming with your conveyancer if you are mid-transaction. Keep your contract documentation.
Three decisions to take into the next conversation with your accountant.
Every residential property held by you or any entity you control needs to be checked against the 12 May 2026 cut-off. Properties before that date are unaffected. Properties after that date will have their loss profile change from 1 July 2027.
For any established residential property acquired after 12 May 2026, or under consideration now, the question is how long the loss-making period will last and when those ringfenced losses will actually be usable. A property that turns cash-flow positive within a few years is only modestly affected. A property that remains loss-making for a decade sees a much more material change in timing.
If you are considering a new residential property investment, the new-build exemption changes the after-tax comparison in a meaningful way. The same headline price can produce very different after-tax outcomes depending on which side of the exemption line the property sits. Worth doing the comparison properly before committing.
For residential builders and developers, a few practical things worth working through with your team.
The product mix matters. If your sales are weighted toward owner-occupiers, the change is unlikely to shift your pipeline materially. If you sell to investors, the exemption should support stronger demand from 1 July 2027 onward. Arguably it is already shifting investor sentiment now.
Pricing and sales structures may need to evolve. Investor-focused product is often marketed with depreciation reports and tax-effective structures. The negative gearing exemption changes the after-tax story for those products in a way that your sales channel needs to reflect.
Build-to-rent operators will compete differently. The build-to-rent exemption preserves the after-tax case for institutional investors. For developers in the build-to-sell market, that is a stronger competitor for the same investor capital.
The change does not affect commercial property, business assets, shares, or any non-residential investment. It does not stop you from claiming residential property expenses against residential rental income. It does not affect properties acquired before 7:30pm AEST on 12 May 2026.
What it does is change when you get the benefit of a loss on a post-Budget established residential property, and it creates a clear after-tax advantage for new builds over established properties from 1 July 2027.
Start with a review of the residential property in your structure. Check acquisition dates, current loss profile, and planned holding period. That review should sit alongside your trust and CGT reviews if applicable, because for most of our construction clients all three Budget measures interact through the same family group of assets.
If you build or develop for the residential investor market, the strategic question is how to position product and sales channels for an investor market that will increasingly favour new builds from 1 July 2027 onward.
We are working through the detail with our construction clients now. If you would like to talk through what the negative gearing changes mean for your structure, get in touch with the team.
This article is part of our 2026-27 Federal Budget series for construction business owners. See also our master article on the Budget, and our deep-dives on the discretionary trust changes and CGT reforms.
