The 2026–27 Federal Budget, released on 12 May 2026, has received more attention than most budgets in recent years.
With proposed changes to negative gearing, the CGT discount and the taxation of trusts, this is a budget that has the potential to materially impact on property investors, business owners and families using discretionary trusts.
Note: , it is important to remember that the proposed changes are not yet law
- Opinion – negative gearing will pass – even if there were some changes
We understand that the proposals are causing some confusion and concern and so we have set out below some comments on what we know so far.
Changes to apply from 1 July 2027
– Negative Gearing
As announced, the Government is planning to tighten up negative gearing on established residential properties … Legislation has been introduced into Parliament
For properties purchased after 7:30pm AEST on 12 May 2026:
- Rental losses can only be offset against rental income or capital gains from other residential properties.
- Tax tip – losses from one property can be offset against rental income from another
- Any remaining losses must be carried forward and applied only against future residential rental income or residential property capital gains.
Grandfathering applies. If you already own an established property—or had exchanged contracts before Budget night—
- nothing changes in terms of negative gearing.
- You can continue to deduct losses against salary, business profits and other income sources until you sell the property.
The explanatory memorandum released with the legislation indicates that existing negative gearing rules will apply to properties that were acquired
- before Budget night,
Tax tip –even if they weren’t used as rental properties at that time.
For example,
- if you own a property that is currently used as your private residence
- but you later move out and
- start using it to generate rental income then
- the Government is indicating that existing negative gearing rules can still be available. However, the position is more complex than this and there is a technical issue that could potentially change this outcome.
As a result, please contact us to discuss this further if you are thinking about converting your private home into a rental property.
The new restrictions only apply to residential property, so losses relating to
- commercial property,
- shares and
- other asset classes
- should not be impacted.
There are also carve-outs for
- commercial residential properties such as
- hotels, motels and boarding houses.
‘New builds’ remain fully eligible for current negative-gearing rules both before and after 1 July 2027,
- but
- final details of what will qualify as a ‘new build’ haven’t been released yet.
Additional carve-outs apply to build-to-rent projects and certain government-supported housing
Do you have a tax or property topic you want decoded or another part of the budget investigated?
Tell us what you’re curious about — from investment property deductions to land tax, CGT or rental compliance — and we’ll research it and publish a summary in an upcoming newsletter
Two heads are better than 1? Discuss your plans? Call to chat…
Call Property Tax Specialists 📱1800 800 829 (TAX) or email reception@propertytaxspecialists.com.au
