Negative gearing changes from 1 July 2027: what Victorian investors need to know

The 2026–27 Federal Budget announced the biggest change to property investor tax settings in a generation, and it passed into law in June 2026. For many investors the headline — “negative gearing is gone” — is wrong. For others it understates how much their numbers have changed.

What actually changed

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, losses on residential property acquired after 7:30pm AEST on 12 May 2026 can no longer be deducted against your salary, business income or other non-property income from the 2027–28 income year. Instead, the excess deductions are quarantined and carried forward to be used against future residential property income or residential capital gains.

For contract purchases, the acquisition time is when the contract was signed, not settlement. A second Act passed in August 2026 extended grandfathering to certain transfers on relationship breakdown and inheritance.

What counts as a “new build”

This is the definition that matters most and is still being finalised. The Budget factsheet says knock-down rebuilds and substantial renovations that do not add to housing supply do not qualify. A new dwelling generally cannot have been previously sold, unless it was owned by the builder and unoccupied for a period after completion. Treasury’s August 2026 exposure draft proposes extending that window; until it is law, confirm a property’s status before you sign, not after.

What we are seeing on the ground

From our side of the desk — selling, managing and financing property in Melbourne — three patterns have emerged since May:

• Grandfathered owners are holding. Investors who bought before Budget night have a tax position new buyers cannot replicate, which changes the hold-or-sell calculation for well-located established stock.
• New buyers are running cashflow first. Without the ability to offset losses against salary, a property that loses $15,000 a year now costs the full $15,000 in after-tax terms each year until it turns positive.
• New builds are being looked at more closely — which makes builder quality, completion risk and the definition above more important, not less.

Five things to do now

1. Confirm the acquisition date of every property you own and keep the contract. Grandfathered status is valuable and permanent until sale.
2. Re-run the cashflow on any planned purchase without the tax offset. Our rental yield calculator shows the pre-tax position.
3. Review loan structure. If the property will be cashflow negative, interest-only versus principal-and-interest, offset accounts and debt recycling all deserve a fresh look.
4. Think about the exit as well as the hold. The capital gains changes from 1 July 2027 also apply — see our note on the CGT changes.
5. Check the ownership structure. Losses quarantined inside a trust or company behave differently again — see property ownership structures.

Common questions