Two major tax changes take effect from 1 July 2027 that will fundamentally alter the economics of residential property investment in Australia: negative gearing quarantining and the replacement of the 50% capital gains tax discount with a cost base indexation system plus a 30% minimum tax floor. If you own investment property or are planning to buy, the decisions you make before the 12 May 2026 cutoff matter enormously. Here is exactly what changes, who is affected, and how to adjust your loan and investment strategy.
Negative Gearing Quarantining: The 12 May 2026 Cutoff
From 1 July 2027, rental losses on established residential property acquired after 7:30 PM AEST on 12 May 2026 can only be offset against rental income or capital gains on residential property. Losses can no longer be deducted against salary, business income, or other non-property income.
What this means in practice: If your investment property generates a $15,000 annual rental loss (interest, rates, maintenance, depreciation exceeding rent), you can currently deduct that $15,000 against your salary, reducing your taxable income and generating a tax refund. Under the new rules, that $15,000 loss can only reduce your tax bill if you have rental income from other properties or make a capital gain on a residential property sale. Losses carry forward indefinitely, but they are trapped inside the residential property tax silo.
Key Details
Cutoff date: 7:30 PM AEST, 12 May 2026. Any established residential property acquired before this moment retains full negative gearing — rental losses can still be deducted against all income types, indefinitely.
What is an "established" property? The legislation targets established residential property. New builds purchased by a first investor enjoy an exception: the first investor purchaser retains full negative gearing on new builds, encouraging supply of new housing.
Exempt entities: SMSFs, complying super funds, widely held trusts, and build-to-rent developments are exempt from the quarantining rules. Discretionary trusts will also face a separate 30% minimum tax from 1 July 2028.
Carry-forward: Unused losses are carried forward indefinitely within the residential property silo. If you accumulate five years of rental losses, you can use those losses to offset a capital gain on selling the property — but not to reduce tax on your salary or business income.
Strategy Implications
If you already own established investment property: Your existing portfolio is grandfathered. Full negative gearing continues for pre-12 May 2026 acquisitions. Do not sell these properties lightly — the grandfathering is a permanent advantage.
If you are buying established property after 12 May 2026: You will be subject to quarantining from 1 July 2027. Factor the loss of salary and wage deductions into your cashflow projections. Your after-tax cost of holding the property will be higher because losses that previously generated a tax refund at your marginal rate will now sit in the silo.
If you want to maintain salary deductions: Consider new-build investment properties where you are the first investor purchaser, or look at commercial property (not subject to residential quarantining). Build-to-rent investments are also exempt.
If you are selling: Capital gains events on pre-cutoff properties retain the existing CGT discount — at least until the CGT reform also takes effect on 1 July 2027.
CGT Discount Replacement: 50% Gone, Indexation + 30% Floor In
From 1 July 2027, the current 50% CGT discount for individuals and trusts holding assets for more than 12 months is replaced by a two-part system:
- Cost base indexation: The cost base of the asset is indexed to account for inflation, reducing the nominal gain.
- 30% minimum tax floor: Even after indexation, at least 30% of the remaining capital gain is included in assessable income.
Example: You bought an investment property for $500,000 and sell it 10 years later for $800,000. Under the current 50% CGT discount, you pay CGT on $150,000 (50% of the $300,000 gain). Under the new system, your cost base is indexed. Let's assume cumulative inflation of 25% over the period, lifting the cost base to $625,000. The indexed gain is $175,000. The 30% minimum tax floor means at least $52,500 is included in assessable income — assessed at your marginal rate. If your marginal rate is 37%, tax is approximately $19,425 on the part above the floor, plus any tax on the balance of the gain.
The impact depends heavily on your holding period and inflation. For short holding periods (1 to 5 years), indexation provides minimal uplift and the 30% floor means you pay more tax than under the current 50% discount. For very long holding periods (15+ years), indexation may reduce the taxable gain more than the 50% discount would have, making the new system potentially better.
Proposals for New Builds
First investor purchasers of new builds can elect either the 50% CGT discount or the new indexation method — a choice that existing property investors do not get. This is another incentive for new-build investment.
Pre-CGT Assets (Pre-19 September 1985)
Gains on assets acquired before 19 September 1985 — previously completely exempt from CGT — will be brought into the tax net for gains accruing after 1 July 2027. If you hold pre-CGT assets, professional tax advice is essential well before the change date.
Discretionary Trust Tax: 30% from 1 July 2028
A separate but related reform imposes a 30% minimum tax on discretionary trusts from 1 July 2028. Excluded income includes primary production income, vulnerable minor income, and income from pre-12 May 2026 testamentary trusts. Corporate beneficiaries receive no credit for the 30% trustee tax, meaning combined effective rates can reach approximately 45% to 51%.
A restructure rollover relief window runs from 1 July 2027 to 30 June 2030, allowing discretionary trusts to restructure without triggering CGT.
What to Do Before 1 July 2027
Review your portfolio. Identify which properties are pre-12 May 2026 (grandfathered for negative gearing) and which post-cutoff properties will lose full negative gearing on 1 July 2027.
Stress-test your cashflow. For post-cutoff properties, model your after-tax position assuming rental losses can no longer offset salary or business income from 1 July 2027.
Consider timing of capital gains. Selling a pre-CGT asset or an asset with a large unrealised gain before 1 July 2027 locks in the current 50% CGT discount. Selling after 1 July 2027 subjects you to the less favourable indexation-plus-floor system in most scenarios.
Evaluate entity structures. If you hold property in a discretionary trust, the 30% minimum trust tax from 1 July 2028 may make a different structure preferable. The restructure window from July 2027 to June 2030 is your opportunity to reposition.
Talk to a broker and tax adviser. These reforms are complex and interact with your specific financial position, loan structure, and long-term goals. Professional advice tailored to your circumstances is not optional.
FAQ
What happens if my property is negatively geared and I have no other rental income? From 1 July 2027, the rental loss on a post-12 May 2026 established property cannot be deducted against your salary or business income. The loss carries forward and can be used to offset future rental income or capital gains on residential property. In the short term, your tax refund from negative gearing disappears.
Does the new CGT system apply to shares and other assets? No. The reforms specifically target residential property. The CGT discount on shares, managed funds, and other assets remains at 50% for individuals and trusts holding longer than 12 months.
If I sell my property before 1 July 2027, do I get the 50% discount? Yes. Any CGT event occurring before 1 July 2027 uses the current rules — 50% discount applies for individuals and trusts holding longer than 12 months.
What if I bought a new build off-the-plan but settled after 12 May 2026? The key date for negative gearing quarantining is the acquisition date. If you exchanged contracts before 7:30 PM 12 May 2026 but settled later, you may be grandfathered. Confirm your specific transaction date with your conveyancer and tax adviser.
Can I avoid the new rules by buying in a different entity? Different entities face different rules. SMSFs are exempt from negative gearing quarantining. Companies are not directly affected by the CGT discount replacement (companies don't get the 50% discount currently). Widely held trusts and build-to-rent entities are exempt from quarantining. Each structure has trade-offs in tax rates, administration, and lending access.