Two tax rules that shaped Australian property investing for decades are being overhauled. Here’s how they work now, and what changes from 1 July 2027.
Negative gearing and the capital gains tax discount are two of the most debated rules in Australian tax, and for property investors, two of the most important.
A property is “negatively geared” when the rent it earns is less than the costs of owning it, such as loan interest, maintenance, insurance and rates. Under the long-standing rules, an investor can deduct that loss from their other income, including their wages, which lowers the tax they pay.
The capital gains tax discount works at the other end. When an investor sells an asset they have held for more than 12 months, only half of the profit has been taxed. Together, the two rules have meant investors could claim losses along the way and pay tax on only half of the gain when they sold.
Supporters say the rules encourage investment in rental housing. Critics argue they favour investors over first-home buyers and push up prices. In the 2026 Budget, the federal government announced changes to both, and the changes passed Parliament in June 2026.
What changes, and who is protected
From 1 July 2027, net rental losses on established residential properties bought after 7.30pm AEST on 12 May 2026 can only be offset against rental income or capital gains from residential property, not against salary or other income. Losses that can’t be used straight away can be carried forward to future years.
Properties that were already owned, or contracted, before Budget night keep the existing rules until they are sold. Newly built homes are excluded, as are build-to-rent developments, superannuation funds and widely held trusts. Commercial property and shares are not affected by the negative gearing change.
The capital gains change is broader. For gains made from 1 July 2027, the 50 per cent discount is replaced by indexation, which adjusts the purchase price for inflation, along with a minimum tax on net capital gains. It applies to assets held by individuals, trusts and partnerships, not just property.
Gains made before that date are protected. For assets bought before 1 July 2027 and sold afterwards, the value on that date becomes the new starting point, so the earlier gain still receives the 50 per cent discount. Investors in new residential property can choose either the old discount or the new approach when they sell.
The family home remains exempt from capital gains tax.
The changes are among the biggest to property tax in decades, and how they apply depends on when and what an investor bought. Anyone affected should get advice from a registered tax agent or financial adviser about their own situation.
