From 1 July 2027, the Government will introduce a fundamental tightening of negative gearing for residential property. The reform pivots decisively toward boosting housing supply: only "new builds" will retain the ability to offset rental losses against salary and wage income.

Importantly, the policy does not abolish deductions for established properties. Instead, it ring‑fences them. For an investor like Yoonseo, who purchases an existing dwelling after the May 2026 announcement, rental losses can no longer reduce tax on her $100,000 salary. Those losses remain deductible, but only in the future — against rental profits or the eventual capital gain. The tax benefit is preserved in value but deferred in timing, which is the key liquidity impact for investors.

To qualify as a new build and retain immediate salary‑offsetting benefits, a property must genuinely add to supply. Under the Budget's criteria:

• Eligible: Homes constructed on vacant land; a duplex replacing a single dwelling.

• Ineligible: Knock‑down rebuilds that do not increase dwelling count; substantial renovations; secondary dwellings such as granny flats attached to existing homes.

As the Budget papers highlight, current settings can encourage leveraged investment strategies that deliver greater tax advantages to investors than to owner‑occupiers. By narrowing these advantages for established properties, the Government aims to reduce investor competition for the same stock sought by first‑home buyers and redirect capital toward new housing supply.

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