From 1 July 2027, negative gearing will be limited to new residential properties, and the 50% CGT discount will be replaced with cost base indexation and a 30% minimum capital gains tax.
Negative Gearing
Negative gearing occurs when investment income from rental properties is less than deductible expenses, such as rates, interest agent fees, land tax, and repairs. Losses can be offset against other income or carried forward. This strategy is popular with property investors because tax losses reduce other income while holding the property, and CGT discounts can be used on sale.
Critics argue it favors high-income earners and drives up property prices, making it harder for first-home buyers. In 1985, negative gearing was effectively abolished for properties purchased after 17 July, but this restriction was removed in 1987, allowing negative gearing on all investments. In 2019, the Labor Government proposed reforms to remove negative gearing for assets purchased after 1 January 2020, but these were not implemented after they lost the election.
Capital Gains Tax
Capital gains tax (CGT) was introduced in Australia on 20 September 1985 and applies to gains or losses on assets acquired after 19 September 1985. A capital gain or loss is generally the difference between the capital proceeds from a CGT event and the total costs associated with it. For assets held at least 12 months, concessions may apply:
- Indexation: Applied to assets acquired before 11:45 am on 21 September 1999 to ensure only real gains were taxed. Each element of the cost base (except ownership costs) could be indexed to the CPI. Indexation only applied to capital gains, not reduced cost bases.
- Discount capital gains: Replaced indexation after 21 September 1999 to encourage efficient asset management. Discounts are 50% for individuals and trusts, 33.33% for complying superannuation entities or life insurance companies. Certain CGT events and gains of foreign or temporary residents are excluded.
- Taxation of net capital gains: Net capital gains are included in assessable income and taxed at the taxpayer’s marginal rate. Net capital losses cannot reduce other income but can offset future capital gains.
Negative gearing to be limited to new builds
From 1 July 2027, negative gearing for residential properties will be limited to new builds. Losses on existing residential properties purchased from 7:30 pm AEST on 12 May 2026 will only be deductible against income from other residential properties, including capital gains, with excess losses carried forward. Properties acquired before this time, including contracts not yet settled, are exempt until sold.
Exemptions apply for eligible new builds, widely-held trusts (such as managed investment trusts), superannuation funds (including SMSFs), and targeted cases like build-to-rent developments and private investors supporting government housing programs. These rules affect individuals, partnerships, companies, and most trusts.
Transitional arrangements:
- New builds can continue to be negatively geared before and after 1 July 2027.
- Established properties held at announcement can remain negatively geared until sold.
- Properties purchased between the announcement and 30 June 2027 may be negatively geared during that period, but not after 1 July 2027.
- Properties purchased from 1 July 2027 cannot be negatively geared.
From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation for assets held over 12 months, with a 30% minimum tax on net capital gains. This applies to all CGT assets, including pre-CGT assets, held by individuals, trusts, and partnerships. Investors in new residential properties can choose either the 50% discount or the new cost base indexation with minimum tax.
The 30% minimum tax applies to gains accruing from 1 July 2027 and won’t affect taxpayers already paying 30% or more. Recipients of means-tested payments, like the Age Pension or JobSeeker, are exempt in the year they realise the gain.
Transitional rules:
- Assets bought and sold before 1 July 2027 follow current rules.
- Assets bought after 1 July 2027 follow the new rules.
- Assets held before 1 July 2027 and sold after will use old rules for gains before 1 July and new rules for gains after, with the 50% discount applying to pre-July gains and indexation plus minimum tax to gains from 1 July.