It has been twelve days since the 12 May 2026 Federal Budget announced the most significant overhaul of property-investor taxation since John Howard's 1999 CGT discount. Negative gearing on established residential property purchased after 7:30pm AEST on Budget night is set to be abolished from 1 July 2027. Existing investors and anyone with a contract dated before 7:30pm on 12 May are grandfathered under the current rules.
The measure is not law yet. Parliament rose for the budget recess on 16 May and does not return until 14 July. Until the enabling legislation passes both chambers, the 7:30pm effective date is government policy backed by a Treasurer's announcement, not statute. That gap matters and is shaping investor behaviour.
What changes from 1 July 2027
For an investor who buys an established residential property after 7:30pm AEST on 12 May 2026, from the 2027-28 income year the loss between rental income and total holding costs (interest, depreciation, rates, repairs, agent fees) can no longer be offset against salary or business income. The loss is quarantined: it can be used against rental income from any residential property the investor owns and against residential capital gains, and whatever is left carries forward.
The change does not apply to new-build property. Investors buying off-the-plan or building new still get full negative gearing under the current rules, which is the government's stated intent: shift the tax concession away from established-stock churn and toward new supply.
The CGT change running alongside it
Easy to miss in the negative-gearing coverage is the second leg of the budget reform: the 50 per cent CGT discount for individuals, trusts and partnerships is being replaced for gains that build up from 1 July 2027 with cost-base indexation plus a 30 per cent minimum tax rate. For a high-income investor selling a long-held property, this is potentially a larger tax change than the negative-gearing leg.
The ATO has flagged it will release detailed guidance on how indexation applies. The previous indexation regime (operating between 1985 and 1999) ran quarterly off the CPI. Whether the 2027 version uses the same mechanic or a simplified annual indexation is still open. We will update this piece when the ATO consultation paper lands.
What investors have done in 12 days
The pre-budget property data was already showing a pull-forward of investor activity in anticipation of policy changes; the Budget announcement turned that into a scramble. Industry feedback from buyers' agents and conveyancers in Sydney and Brisbane is that contracts dated 12 May (with a signed time before 7:30pm) have been the busiest single category for new investor purchases since pandemic-era stamp-duty deadlines.
Three behaviour shifts are now visible. First, a sharp pivot toward off-the-plan and house-and-land for investors who could not get a 12 May contract done in time; new-stock property remains grandfathered for negative gearing on a forward basis. Second, accelerated SMSF property purchases via Limited Recourse Borrowing Arrangements, where the LRBA structure is unaffected by the personal negative-gearing change. Third, an uptick in interest in commercial property, which does not fall under the residential negative-gearing change at all.
Industry submissions and political reality
The Property Council, REIA and HIA have all submitted briefings to Treasury arguing for tighter grandfathering definitions (particularly for off-the-plan deals exchanged but not settled by 12 May) and clearer treatment of investors who upgrade an investment property after the cut-off. The MFAA and FBAA have flagged that lender serviceability calculations will need to be reworked when the change goes live, since the assumed tax position on a new investor loan changes materially.
On the political side, the Greens and a section of the crossbench have indicated they want the measure expanded (tighter limits or earlier dates), while the Opposition has said it will oppose the measure as currently drafted. The most likely path through the Senate involves amendments rather than wholesale rejection, but the final shape is genuinely uncertain until the legislation is introduced.
Practical actions for investors now
- If you exchanged contracts before 7:30pm on 12 May 2026, file the dated contract somewhere obvious. You are grandfathered, but the documentary trail will matter in a 2028 audit.
- If you were planning to buy established stock in the next 12 months and did not get a contract done, the maths now strongly favours pivoting to new-build or off-the-plan.
- If you hold an investment property purchased before 12 May, your negative gearing is unchanged. On sale, the gain up to 1 July 2027 keeps the 50 per cent discount; only growth from that date falls under the new CGT rules.
- If you are weighing a sale in the 2026-27 financial year, do not bring it forward for tax reasons alone: the gain made before 1 July 2027 keeps the discount either way. Talk to a tax adviser about recording the asset's value at 1 July 2027.
- Do not act on a serviceability calculation that has not been updated for the post-2027 negative-gearing position if you are buying established property after the cut-off.
When this will be settled
Best estimate: legislation introduced in the August parliamentary sittings, with Senate amendments through late 2026, final form clear by November-December 2026, and the ATO consultation on indexation methodology resolved in early 2027 ahead of the 1 July effective date. For investors buying between now and then, the prudent assumption is that the 12 May 2026 effective date holds, but the surrounding mechanics may shift.