The negative gearing rules changed on budget night and are now law. Most coverage has been written for accountants. This is what actually changes for someone buying in Melbourne: who is grandfathered, what counts as a new build, what replaces the 50 per cent CGT discount, and how to test an asset without the deduction.
The negative gearing rules changed on budget night and are now law. Almost all of the coverage has been written for accountants. Here is what actually changes for someone buying an investment property in Melbourne.
From 1 July 2027, negative gearing on residential property is limited to new builds. Buy an established house or apartment after 7:30pm AEST on 12 May 2026 and you will not be able to deduct rental losses against your salary once that date arrives.
The word most of the coverage uses is abolished. That is not quite right, and the difference matters. Losses on established property are not cancelled. They are ring-fenced. You can still offset them against residential property income, including capital gains on residential property, and carry forward whatever you do not use. The deduction survives. It simply cannot reach your wage any more.
The reform passed as the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. Treasury put the reasoning plainly enough: more than 80 per cent of new investor lending goes to existing homes, and the intent is to push that money toward new supply instead.
Anything you held at 7:30pm on 12 May 2026 is untouched. That includes property under contract but not yet settled. Current rules continue for those holdings until you sell.
Here is the part that gets missed. The grandfathering attaches to the holding, not to the bricks. If you buy a grandfathered apartment from an investor who has owned it since 2019, you do not inherit their treatment. You are buying established stock after budget night, so from 1 July 2027 your losses are quarantined like everyone else's. Worth saying plainly, because you will meet selling agents over the next eighteen months who imply otherwise.
A new build is a dwelling that genuinely adds supply. Construction on vacant land qualifies. So does demolishing an existing dwelling and replacing it with a greater number of dwellings.
Buying a five-year-old apartment from its first owner does not qualify. Neither does renovating. Build-to-rent developments, widely held trusts, superannuation funds and private investors supporting government housing programs sit outside the changes as well.
The larger change, and the one getting less attention.
From 1 July 2027 the 50 per cent discount ends for individuals, partnerships and trusts. In its place sits cost base indexation, which adjusts your gain for inflation, alongside a minimum tax rate of 30 per cent on realised gains.
The switch is prospective. On 1 July 2027 there is a deemed disposal and reacquisition of capital assets, and any gain accrued before that date keeps the 50 per cent discount. Owners of new residential dwellings and affordable housing can choose which of the two systems to apply. Companies, superannuation funds, life insurance companies and foreign or temporary residents are not affected.
Whether indexation leaves you better or worse off depends on your holding period and on inflation across it. Over a long hold in a low inflation decade, indexation is the worse outcome. That calculation belongs with your accountant, and it moves with your marginal rate.
12 May 2026, 7:30pm AEST. The line for grandfathering.
1 July 2027. Both the negative gearing limit and the CGT change begin.
1 July 2028. A minimum 30 per cent tax rate on discretionary trusts starts, with rollover relief available for three years from 1 July 2027 for anyone restructuring out of one.
An established property bought today can still be negatively geared until 30 June 2027. That window is real. It is also short, and catching it is a poor reason to buy anything.
Very little about which property is worth owning. Quite a lot about how you test it.
The deduction was always a subsidy for a weak cash flow position. Remove it and the position has to stand on its own. That is a stricter test, and a better one. The rest of the test has not moved. Land content, location drivers, scarcity and a rate you can service still decide the outcome, and they are set out in the Melbourne property investment guide.
Holding costs matter more once the deduction narrows. Victoria carries the lowest land tax threshold in the country at $50,000 of site value, with the COVID Debt Levy surcharges sitting on top of it until 2033.
Now look at where Melbourne actually sits. The median dwelling value is $786,718, down 4.7 per cent over the year to August 2026. Houses fell 5.7 per cent, units 2.5 per cent. Over the same stretch rents grew 4.9 per cent in the year to June and vacancy tightened to 1.6 per cent. Melbourne's gross dwelling yield is now around 4 per cent, the highest of any major Australian capital, with units at 5.1 per cent against 3.4 per cent for houses.
The city that was hardest to hold on cash flow has quietly become the easiest of the big two. None of that came from the tax system, and all of it will still be true in July 2027.
The risk I would watch is a different one. A tax rule that favours new builds will be used to sell new builds. Off-the-plan stock carries a developer margin, thinner land content, and in this city a long record of towers where the resale sat below the purchase price five years later. A deduction repairs none of that. On a $25,000 annual loss at the 37 per cent marginal rate, the deduction is worth roughly $9,250 a year. It is not worth a $100,000 capital error.
Telling a good new build from a bad one is the work an investor buyer's advocate should be doing, with or without a tax change. If a new build is the right asset at the right price, the tax treatment is a bonus. If it is not, the tax treatment is the reason you bought the wrong thing.
No. Anything held at 7:30pm on 12 May 2026, including property under contract at that moment, keeps the current treatment until you sell it.
1 July 2027. The CGT change starts on the same date.
Yes. New builds keep negative gearing before and after 1 July 2027, and owners of new residential dwellings can choose between the 50 per cent CGT discount and the new indexation rules.
They are quarantined, not cancelled. You can offset them against residential property income and residential capital gains, then carry forward anything left over.
If you are holding established stock bought before budget night, nothing changes and there is nothing to do. If you are deciding what to buy now, send me the address and the numbers and I will tell you whether the asset holds up without the deduction.
This is general information, not tax or financial advice. Your position depends on your circumstances and your marginal rate. Speak to your accountant before acting on any of it.
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