Australia's negative gearing and capital gains tax reforms are now law. Parliament passed them on 25 June and received Royal Assent on 26 June. The critical cutoff date for existing investors is 7:30pm AEST on 12 May 2026. Properties owned or contracted by that time are grandfathered under current rules. For most commentary, that means investors are screwed. But beneath the headlines, the mechanics of these reforms create real opportunities if you know where to look.
The reforms narrow negative gearing to new builds and replace the 50% CGT discount with CPI indexation plus a 30% minimum tax, both from 1 July 2027. Existing investors bought before budget night (12 May 2026) are grandfathered. That much is well understood. What isn't widely discussed is what this actually means for capital moving into the market between now and mid-2027.
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#Three Rules Written So You Can Use Them
#Only New Builds Keep Full Negative Gearing Forever
From 1 July 2027, rental losses on established residential property acquired after budget night (12 May 2026) can no longer be deducted against salary or wage income. They become quarantined, carrying forward indefinitely but only usable against future residential property income or the eventual capital gain on sale.
New builds are fully exempt. Investors get to choose between the existing 50% CGT discount and the new indexation method when they sell. Both concessions stay attached as long as you hold the property. This is the single biggest structural lever in the reform package, not a minor side note.
Eligible (Supply Increases) | Not Eligible (Existing/Same Footprint) |
|---|---|
• Off-the-plan apartments bought from developers | • Knock-down rebuilds (one-for-one replacements) |
• Duplexes built via knock-down rebuilds | • Substantial renovations or extensions |
• Vacant land built on by the investor | • Granny flats added to existing properties |
• Properties under 12 months old at first sale | • Second-hand purchases of occupied dwellings |
The concession attaches to the original purchaser only. If you buy a new build, you get the full suite of benefits. Sell it two years later to another investor and that second buyer loses everything. This makes new builds a one-time ticket.
Any investor entering the market for the first time under these rules should be buying new builds exclusively, provided the underlying asset stacks up on its own merits. The tax benefit should not be the thesis, but it absolutely changes the risk-reward calculation once the property passes fundamental tests: location, land content, yield, growth drivers.
Suburbs with pipeline supply of quality apartment projects near infrastructure spend, employment hubs, and transport corridors are becoming the highest-conviction entries right now.
Established Stock Is About to Be Dumped
CBA economists estimate the package will lower national prices by nearly 5% over time as investor demand adjusts. Investor lending has already contracted sharply. From $155.5 billion in the September quarter it fell to $142.4 billion by December and $140.0 billion by March, according to ABS data. Cotality data from June showed investor caution contributing to broader demand slowdown.
Gross rental yields have climbed to their highest since late 2025.
Every major investor with exposure to established stock faces a decision tree: hold through the transition and manage quarantined losses, or sell while prices still carry some premium and redeploy capital into new-build strategies that preserve full negative gearing.
Those selling decisions create inventory. More inventory means less competition for buyers who still have access to credit. Weaker investor competition means established properties priced correctly start looking genuinely attractive from a cash-flow perspective.
If you're buying established property after budget night, accept that your losses will be quarantined from day one. Do not model the purchase around the promise of tax deductions against wages. Model it on whether the rental yield works on its own terms. Investors fleeing established stock for new builds creates a negotiation window. Prices are softening nationally. There have been four consecutive months of falls on PropTrack's index as of July 2026, and there is room to negotiate below asking on well-located established assets that would otherwise work as investments.
Investors making money in this environment are not hoping for rates to fall or for the government to repeal the reforms. They're buying assets that are fundamentally sound and negotiating hard because everyone else is panicking.
Sell Before 30 June 2027 If You Want The Old Discount
For gains accruing after 1 July 2027, the 50% CGT discount is gone. CPI indexation of the cost base replaces it, plus a 30% minimum tax on net gains. Assets held before that date keep the 50% discount only on growth accrued up to 30 June 2027. After that date, gains switch to the new regime.
Assets are treated as disposed and reacquired at market value on 1 July 2027. Growth from your original purchase to that date uses the 50% discount when you eventually sell. Growth after 1 July 2027 uses indexation. No tax falls due on 1 July itself. It is purely a method switch.
If you sell before 1 July 2027, you lock in the full old regime. Every dollar of capital gain realized through 30 June 2027 gets the 50% discount without exception.
Investors holding investment properties with strong nominal gains should model exit timing deliberately. Selling on 30 June 2027 versus 1 July 2028 could mean tens of thousands of dollars difference depending on the asset's growth trajectory, marginal tax rate, and inflation path over that period.
That does not mean rush to sell in panic. These are calculated dispositions. Properties where fundamentals have shifted, plus properties where you need liquidity elsewhere, and any properties that do not fit the post-2027 portfolio all become higher-priority candidates for sale before the deadline.
Indexation may actually favour some long-hold, modest-growth investors more than the old 50% discount did, according to analysis from the University of Western Australia. Longer holding periods benefit more from indexation because inflation lifts the cost base more substantially over time. Shorter holds with strong nominal gains tend to fare worse under indexation than under the flat 50% discount. Your optimal sell strategy depends heavily on the specific asset's individual holding period and growth history.
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The Bare Trust Window: Already Closed
The Treasury Laws Amendment (Tax Reform No. 2) Act 2026 received Royal Assent on 26 August 2026. Among its provisions was a retrospective deadline of 9 August 2026 for bare trust arrangements designed to preserve negative gearing eligibility after a change in beneficial ownership. That cutoff has already passed.
If you haven't structured your holding entity correctly, consult your accountant. The window is closed.
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SMSFs: Exempt From Quarantine, Banned From Borrowing
Self-managed super funds are excluded from the negative gearing quarantine entirely. An SMSF can continue to acquire established residential property under existing superannuation investment rules. Loss quarantining simply does not affect super funds since they operate under a separate tax framework.
A Senate amendment bans SMSFs from using limited recourse borrowing arrangements (LRBAs) for residential property acquisitions, effective 45 days after royal assent. For anyone planning to borrow inside an SMSF to buy residential investment property, this option is now closed. Existing SMSF property loans remain grandfathered.
SMSF holders still have a pathway to acquire property outright or using other financing structures within super rules. Discretionary trusts face a separate 30% minimum tax on distributions from 1 July 2028. Many investors are having to reconsider how their property holdings are structured.
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What The Research Says About Who Wins
The e61 Institute found that 53% of housing investors pay more tax overall under these changes and 43% pay less. On CGT specifically, 54% of investments result in lower tax under indexation while 42% pay more. On negative gearing, 28% of investors pay less rental income tax while 49% pay more.
People most likely to pay higher taxes are highly leveraged investors or those with little other taxable income. Retirees who rely on investment income are particularly affected. Younger investors building wealth through rent-vesting strategies or share portfolios could also see higher effective tax rates.
The reforms hit hardest at the margins. Moderately leveraged investors with diverse income sources and good yields tend to find the transition manageable. Some even come out ahead, particularly those who hold assets for many years with steady rather than spectacular growth.
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Where To Focus Right Now
Check your status first. Ask yourself whether you owned properties before 7:30pm on 12 May 2026. If yes, you're grandfathered. Document your acquisition dates with contracts and settlement statements. You can continue claiming unlimited negative gearing while you hold the property.
Stress-test your current portfolio next. Run your numbers assuming all future established property purchases face loss quarantining. Identify which holdings remain viable under those tighter assumptions and flag any that may need restructuring.
When evaluating new builds, focus on fundamentals first. Yes, they retain full negative gearing and offer a choice between the two CGT methods. But the property still needs rental yield, growth prospects, land content, and location fundamentals. Tax breaks enhance strong investments. They cannot rescue weak ones.
Consider accelerating sales on any property you have been meaning to list, since the old 50% discount applies until 30 June 2027. Model the tax delta between selling now versus selling in 2028.
Watch for temporary price softening in quality established suburbs as investors shift toward new-build strategies. Cash-flow-focused buyers can take advantage of these dislocation prices.
Meet with your accountant to review and potentially restructure your holding entities. Companies, trusts, and individuals face different paths under the reforms. Holding structures designed around the old rules may require significant adjustments.
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The Bottom Line
These reforms change the playing field but they do not eliminate it.
Those who treat these reforms as a crisis risk panic-selling assets at depressed prices, overpaying for tax-favoured new builds, or missing real opportunities in the established market. Investors who approach the changes strategically, mapping which doors are opening and which are closing, gain a clear advantage.
The window for deliberate action runs approximately ten months before the new regime takes full effect.
Legacy Property Investments offers hotspot data, custom cash-flow calculators, and expert advisory insights to help you model exactly how these changes affect your specific situation.
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*Disclaimer: This content is educational and based on publicly available information as of the publication date. Always consult a qualified financial adviser or tax professional before making investment decisions.*