Negative gearing and CGT changes from 1 July 2027: what they mean for depreciation

What is changing from 1 July 2027?

Negative gearing

Negative gearing of residential property will be limited to new builds from 1 July 2027. According to Treasury:

• new builds can continue to be negatively geared before and after 1 July 2027;
• properties held before the announcement (7:30 pm AEST on 12 May 2026) are exempt from the changes; and
• investors who buy established housing after 12 May 2026 can deduct losses against other income from residential properties, including capital gains, and can carry forward excess losses to future years, but cannot deduct those losses against non-residential income such as wages.

Capital gains tax

From 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced with a discount based on inflation (cost base indexation), and a minimum 30% tax rate applies to capital gains. Treasury says the new arrangements apply only to capital gains that accrue from 1 July 2027 when they are realised, and the ATO says the CGT reforms apply only to gains that accrue after that date. Investors who buy new builds can choose either the existing 50% CGT discount or the new inflation-based arrangements and the minimum tax.

Who do the changes affect?

• You already own the property (held at 7:30 pm AEST on 12 May 2026): exempt from the negative gearing changes. The CGT changes apply to the part of a gain that accrues after 1 July 2027 if you sell later.
• You buy an established residential property after 12 May 2026: rental losses are limited as described above from 1 July 2027.
• You buy a new build: can continue to negatively gear, and can choose between the 50% discount and the new CGT arrangements when you sell.
• Commercial property: the Budget papers say the limit applies to net rental losses from residential property, and commercial property remains subject to existing arrangements.

What do the changes mean for depreciation?

Depreciation is a rental deduction, so it is one of the amounts that goes into working out whether a property makes a net rental loss. The ATO and Treasury pages describe these reforms as changes to negative gearing and CGT. They do not describe changes to the Division 40 plant and equipment or Division 43 capital works rules, which are explained in our Division 40 vs Division 43 guide.

What can change is how and when the benefit is used:

• For an established residential property bought after 12 May 2026, a net rental loss, which is calculated after all rental deductions including depreciation, can be used against residential property income and gains and carried forward. It cannot be used against wages.
• For a new build, or a property held at 12 May 2026, existing rules for rental losses continue.
• Depreciation deductions do not depend on whether a property is negatively or positively geared. Whether claiming them is worthwhile for you depends on your circumstances, so ask your accountant.

Why do cost base records matter more?

Indexation works from the property’s cost base. That includes the cost of acquiring the property and capital improvements, and it is reduced by capital works deductions you can claim. If you renovated, extended or built, records of those costs support the figure your accountant uses.

Where receipts or invoices are missing, for example on an owner-built home, renovation or improvements made by a previous owner, a CGT Cost Base Report provides an estimate of construction and improvement costs prepared with qualified quantity surveying expertise. It is not required by the new law and it is not tax advice. Residential CGT Cost Base Reports are $395 + GST, and commercial reports are quoted individually.

The way a gain is split between the period before and after 1 July 2027 is also something to raise with your accountant, along with what records they need.

What is not settled yet?

The detailed definition of a “new build” is set out in separate legislation that has been through consultation. We do not define it here. Treasury’s page says new builds can continue to be negatively geared, but check the ATO page for the current position before relying on any definition you read elsewhere, including whether a renovation or a rebuild would qualify.

Questions to ask your accountant

1. Was this property held at 7:30 pm AEST on 12 May 2026, and are the negative gearing changes relevant to it?
2. If I buy another property, would it be treated as a new build or an established property?
3. How will the part of a gain that accrues before and after 1 July 2027 be worked out for my property, and what records do you need?
4. Are my construction and improvement cost records complete enough to support my cost base?
5. Should I choose the 50% discount or the new arrangements, where I have the choice?