Negative Gearing and CGT Are Changing From 1 July 2027: What Property Investors on High Incomes Should Do Before Then

The 2026-27 Federal Budget changed the rules on property investment in a way that lands squarely on high-income earners, because they are the people most likely to hold negatively geared property and most exposed to the capital gains tax discount being wound back. The changes were announced on budget night, 12 May 2026, and are intended to apply from 1 July 2027.

The instinct on budget night was either panic or relief, depending on what you owned. Both reactions are too fast. The detail of these changes, particularly the grandfathering and the way capital gains will be split across two regimes, matters far more than the headline, and it rewards investors who understand it before 1 July 2027 rather than after.

This is general information, not advice on your situation, and an important caveat sits over all of it: these measures are announced policy, not yet law. The detail can shift as legislation is drafted. What follows is what the budget papers and the ATO have set out so far.

What is actually changing

Two separate reforms are bundled together here, and they affect different things.

Negative gearing is being limited to new builds. From 1 July 2027, if you buy an established residential property after budget night, you will no longer be able to deduct rental losses against your salary or other income. Those losses can only be offset against residential rental income or capital gains from residential property, and any excess can be carried forward to future years. New builds keep the existing treatment, including the ability to deduct losses against all income. A new build means property that genuinely adds to housing stock, so knock-down rebuilds and renovations that do not increase supply do not qualify.

The 50% CGT discount is being replaced. From 1 July 2027, the long-standing 50% discount for individuals, trusts and partnerships gives way to a system of cost-base indexation combined with a 30% minimum tax rate on capital gains.

This is the broader of the two changes, because it applies across CGT assets held by individuals, trusts and partnerships, not only residential property.

The dates that decide whether this affects you

Two moments matter, and confusing them is where investors go wrong.

7:30pm AEST, 12 May 2026 is the line in the sand for negative gearing. If you owned a property before that moment, or had exchanged contracts before it even if settlement had not happened, your negative gearing is grandfathered. It continues under the current rules for as long as you hold the property, regardless of how many properties you own. The grandfathering turned out to be more generous than many expected, because it captures properties under contract, not just those already settled.

1 July 2027 is when the new rules switch on for anyone who buys an established property after budget night, and when the CGT change takes effect for everyone.

On capital gains, the transition is proportionate rather than a cliff. For an asset you hold across the changeover, the gain that accrued up to 1 July 2027 still gets the old 50% discount, and only the gain from that date forward falls under the new indexation-and-minimum-tax model. You can establish the split using a professional valuation as at 1 July 2027 or the ATO’s apportionment formula.

The practical effect is that long-term holders of existing assets are partly protected, but the longer you hold past 2027, the more of your eventual gain sits under the new regime.

What is not affected: commercial property and shares are exempt from the negative gearing changes, and any residential property held or under contract before budget night keeps its current treatment entirely.

What high-income property investors should consider now

The window between now and 1 July 2027 is long enough to think clearly and short enough to matter. Against your own position:

Know exactly which of your properties are grandfathered. Confirm the acquisition date and contract date of every property you hold. This single fact determines whether the negative gearing change touches a given asset at all, and it is worth documenting properly now rather than reconstructing later.

Get a clear picture of your CGT position before the changeover. Because gains will be split at 1 July 2027, the cost base and value of your assets at that point become important. A valuation at the right time, and good records, can materially affect the tax you eventually pay. Speak to your accountant about whether a 1 July 2027 valuation suits your holdings.

Think about structure for any future purchases. The relative appeal of established property, new builds, commercial property and shares has shifted. That does not mean abandoning residential property, it means buying with clear eyes about how the tax treatment now differs across asset types.
Do not let the tax tail wag the investment dog. A property that does not stack up as an investment does not become a good one because it is grandfathered, and a sound investment is not ruined because the discount is changing. The asset has to make sense first.

Wait for the legislation before any major restructure. Because this is announced policy rather than law, large irreversible decisions made now carry the risk that the detail changes. Plan and prepare, but be wary of acting on a measure that is not yet final.

The Obsidian perspective

Tax changes like this one bring out a predictable reaction in investors: the urge to do something dramatic before a deadline, as though motion equals strategy.

Sell before 2027. Buy before 2027. Restructure everything. Most of it is driven by the discomfort of a rule changing rather than by any clear analysis of whether the change actually hurts the plan.

Here is the more useful frame. A tax setting is one input into an investment, not the reason to hold it. Negative gearing was never the point of owning property. It was a feature that made holding a quality asset more efficient. If the only reason a property exists in your portfolio is the tax deduction, the change is exposing a problem that was already there. If the property is genuinely sound, the change adjusts the maths at the margin and rewards patient, deliberate ownership over churn.

The investors who handle this well will be the ones who understood their own position early: which assets are grandfathered, what their real after-tax return looks like under the new rules, and whether each holding earns its place on its merits rather than its deductions. That clarity is unglamorous and it is the whole game. The ones who struggle will be the ones who reacted to a headline in May, rearranged a portfolio around a forecast, and discovered the detail later. Strategy is knowing what you hold and why, well before a deadline forces the question.

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