Within hours of the 2026–27 Budget announcement, much of the property commentariat declared the end of investment property as Australians know it. But the detail is far less devilish than the headlines would have you believe.
Negative gearing – the ability to offset rental losses against other income – still exists, as does the investment opportunity in residential property. However, the structure around it has changed in an attempt to support new housing development.
Quarantine, not abolition
Firstly, for existing investors, nothing has changed. Current arrangements are grandfathered.
The biggest change is for new purchases of established residential properties made after the budget announcement on 12 May 2026. For these investments, losses will be “quarantined” from 1 July 2027. This means that the loss does not disappear – it is deferred. Carried-forward losses will be deductible against income from other residential properties, or against a capital gain when the property is sold. Unused losses carry forward indefinitely.
Finally, three categories of residential property remain fully exempt from the changes: eligible new builds, superannuation funds (including SMSFs), and investors supporting government housing programs. Commercial property and shares are also unaffected.
What this means for future investment
The key distinction going forward is new build versus established property. New builds retain the full benefit of losses being deductible against all income.
For established properties purchased after Budget night the quarantine applies from 1 July 2027, converting an immediate tax saving into a deferred one. This hits hardest for high-leverage investors with low rental yields who depended on cross-income offset to make the cashflow work.
SMSFs can continue to offset rental losses against fund income in the ordinary way, positioning super-held property more favourably than personal investment under the new rules.
For family trusts and other closely held trusts, the position requires caution. The “widely held” exemption is unlikely to cover most private structures, and the draft legislation will need careful review when it arrives. Read our article on other impacts to discretionary trusts in this year’s Budget here.
An opportunity for property developers
While much of the post-Budget commentary focused on what investors stand to lose, property developers have landed in a more favourable position.
As new builds are fully exempt from the quarantine rules, an investor who purchases a new residential property can continue to offset rental losses against all income. In addition, when they eventually sell, they have the choice between the existing 50% CGT discount or the new indexation and minimum tax framework – whichever produces the better outcome at that time. That is a double tax advantage over established property that did not exist before Budget night.
This means that developer stock has moved up the investor preference ladder by deliberate policy design. Investor buyers will be actively recalibrating their acquisition decisions, and new builds are where the tax benefits sit.
It’s important to note that the definition of “new build” in the legislation has not yet been confirmed. Whether off-the-plan purchases, substantial renovations or conversions qualify will depend on the drafting. Developers should seek advice early to confirm their product meets the exemption criteria and structure their projects and contracts accordingly.
The bottom line
Existing investors are protected. New builds are incentivised. Losses are deferred, not gone.
The investors most affected are those acquiring established properties after Budget night on high leverage and with thin rental yields. For everyone else, this calls for review, not reaction.
If you would like to discuss what these changes mean for your portfolio or planned acquisitions, please reach out to our team.
Further reading
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