Negative gearing changes 2027

This page reads the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49, 2026) itself. Most of what is written about this reform is a summary of a summary, and two of the details that matter most are missing from almost all of them, so the sections are quoted below.

The dates

What "quarantined" actually means

Section 26-155(1) is the whole rule, and it has three steps that run in order. Where your deductions for holding residential dwellings exceed your income from them, the excess:

1. is not deductible that year — this is the part everyone reports;
2. becomes a quarantined amount that can be applied against capital gains on residential property for the same year, through the method statement in section 102-5;
3. and only what survives that is carried forward to next year.

The middle step is missing from almost every account of this reform, including ours until 8 September 2026. It matters: a year in which you sell a residential property at a gain is a year in which a quarantined rental loss can still do work. A gain on shares does not count — steps 3 and 4 of section 102-5 apply the quarantined amount only to residential capital gains, which we had also overstated until 4 October.

One step runs even earlier. Section 26-155(6) reduces the excess before any of that, by the net income from the dwellings you hold that are not quarantined. A grandfathered flat that runs at a profit absorbs the loss on a newly bought house first.

The Act's own worked example

Section 26-155(1) carries an example, and it is worth reading because it is Parliament's arithmetic rather than ours. Henrietta buys an established dwelling in July 2028:

By 2030-31 her deductions have fallen to $20,000, the property runs at a $52,000 profit, and that profit fully absorbs the $33,000 she has been carrying, so that year $53,000 comes off her rent: the year's own $20,000 plus the $33,000 brought forward. Nothing was forfeited — it was deferred, which is the honest way to describe this reform and not the way it is usually described.

The exemption everyone quotes has no definition yet

The ATO's own summary says the reform will "limit negative gearing for residential property investments to new builds". Every calculator and explainer repeats it. Here is section 26-160(3) and (4) in full:

(3) A residential dwelling is a new residential dwelling in relation to you if the requirements determined under subsection (4) are met in relation to you and the residential dwelling.

(4) The Minister must, by legislative instrument, determine requirements for the purposes of subsection (3).

That is the entire definition. It defers to an instrument, and an instrument made under section 26-160(4) would be authorised by the Income Tax Assessment Act 1997 itself. Checked against every title on the Federal Register since the amending Act passed, up to 2 October 2026: no instrument has been made under subsection 26-160(4). The only instrument the 1997 Act has authorised in that time concerns the hydrogen tax incentive. The carve-out the policy is named after is still an empty box.

What exists is a proposal. Treasury ran a consultation from 4 to 21 August 2026 whose exposure drafts included one titled "New residential dwelling and negative gearing activity exemptions". The Treasurer's release of 4 August said a property would generally be new where it "genuinely adds to housing supply, provided the property was acquired within 24 months of a certificate of occupancy being issued" — extending the 12 months announced at Budget — and that "the final definition and exemptions will be included in primary legislation". The consultation has closed, and Treasury's page now says a Tax Reform No. 3 Bill carries this second stage; it has not passed. Another draft from the same consultation did become law, and it is covered in the next section. The definition did not.

So 24 months from an occupancy certificate is the number to plan around and not the number to rely on. If you are buying something whose newness is arguable — a substantial renovation, a knock-down rebuild, a dwelling that has been sitting unsold for two years — there is no test to apply yet, and a contract that depends on the answer is a contract taking a legislative risk.

Whether it reaches you at all

Two different things get called "exempt" and they behave differently. Being grandfathered means the rule exists but your dwelling sits outside it because of when you acquired it. Being out of scope means the rule never applied to you in the first place, and the acquisition date is irrelevant.

On grandfathering, the Act says the dwelling must be one you last acquired before 7.30 pm, by legal time in the Australian Capital Territory, on 12 May 2026. Two words there repay attention. "Last" means a property you sold and bought back is tested on the second purchase. And the timing is settled by section 26-155(3), which overrides the usual rule so that a dwelling bought under contract is acquired when you enter into the contract — so an exchange in April 2026 that settled in September is grandfathered.

Moving out of your own home and renting it does not reset the date, even though the capital gains rules treat that moment as a fresh purchase at market value. Section 26-155(3AA), added by No. 71, 2026, says to disregard that deemed reacquisition, and section 26-155(3AB) does the same for a new build you lived in first, so it stays new when you rent it out.

The same Act lets the old rules pass on in three situations, from the 2027-28 income year: to a surviving spouse (section 26-156); to a co-owner who takes the deceased owner's share, but only if both bought before Budget night (section 26-157); and to a spouse or former spouse who receives the dwelling under a family-law order, agreement or award (section 26-158). New-build status passes the same way, and section 26-159 carries it through to the capital gains discount. Anyone else who buys the dwelling starts their own clock, and on our reading so does anyone else who inherits it.

Out of scope entirely:

There is one more door, and it is shut for now. Section 26-155(2)(c) lets the Minister exempt a dwelling used for a determined activity or purpose, but section 26-155(3A) only permits that where it assists social or affordable housing, or housing for Aboriginal or Torres Strait Islander people, people with a disability, aged people, or another class suffering disadvantage. No such determination has been made either.

The trap: no deduction, and no cost base either

Ordinarily an expense you cannot deduct for holding a property can still find its way into the third element of the cost base and reduce your capital gain on sale. Schedule 2 closes that off. New subsections 110-38(8A) and 110-55(9JA) say expenditure "does not form part of any element of the cost base" — or the reduced cost base — to the extent section 26-155 prevented the deduction.

The logic is sound, since the amount is already carried forward and would otherwise be counted twice. The consequence is that the carry-forward is the entire relief. An investor who never returns to a rental profit and then sells does not get the amount back at the other end, and if they go bankrupt first, sections 26-155(8) and (9) extinguish whatever is unused.

The other half of the same Act: capital gains

The reform arrives as a pair, and the capital gains side is the one with the second Act behind it — the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 sets the rate. From 1 July 2027 the 50% discount is replaced for individuals, trusts and partnerships by indexation of the cost base plus a 30% minimum rate on capital gains.

Division 119 does the second part, and it is a top-up rather than a flat rate. You work out 30% of the gain, work out what tax you would have paid on that gain at your marginal rates, and pay the difference if there is one. Someone already above 30% pays nothing extra; someone on a low income in the year of a moderate gain does.

Gains that accrued before the start date keep the old treatment through a reset: an asset held on 30 June 2027 is treated as sold just before, and reacquired on, 1 July 2027, and indexation runs only from that day. The method for splitting a property gain either side of that line is still a draft legislative instrument from the same closed consultation, so we do not compute it and neither should anything else.

Two carve-outs mirror the negative gearing side: a new residential dwelling keeps the 50% discount under section 115-102, and so does affordable housing under section 115-125. The first depends on the same undefined term.

The provision nobody is reporting

Section 119-15 switches the 30% minimum tax off completely if you received any of a long list of payments at any time during the income year:

• Age pension
• Disability support pension
• Carer payment
• JobSeeker
• Parenting payment
• Youth allowance
• Austudy
• Special benefit
• Double orphan pension
• Veteran payment
• Family tax benefit
• Parental leave pay
• Stillborn baby payment
• Farm household allowance
• ABSTUDY living allowance
• Certain Veterans’ Entitlements Act pensions
• Military Rehabilitation and Compensation Act 2004 payments listed in s 119-15(5)

One qualifying fortnight of parental leave pay, or a year in which family tax benefit was paid, and Division 119 does not apply to you at all. The test is personal — it reads "does not apply to you if you receive" a payment — so when a couple sell a jointly owned investment property in a year one of them was on parental leave pay, it covers that partner's share of the gain and not the other's.

What this page does not tell you

Three things are genuinely unknown, and a page that filled them in would be inventing law: what a new build is, how a gain is split either side of 1 July 2027 for a property, and which activities the Minister will exempt. All three sat in the tranche 2 consultation that closed on 21 August 2026 and none of the three has been enacted; the part of that consultation that did pass is the inheritance and family-law material above. We will update this page when they are, and the corrections will say what changed.

Nothing here is advice about your position. It is what the sections say. Whether they are good policy, and what you should do about them, are different questions with different people to ask.