What the 2027 tax changes mean for people buying property now

Parliament passed new tax rules for residential property in June. They start on 1 July 2027. Which negative gearing rules apply to an investment property depends on when the ownership interest in it was last acquired.

National dwelling values fell 0.9% in August on the Cotality Home Value Index, a fifth consecutive monthly decline that leaves values around 3.6% below their March peak. Auction clearance rates have moved either side of 50% through winter, with Cotality recording a final combined capital city rate of 48.9% for the week ending 16 August, down from 51.4% the week before. The Reserve Bank left the cash rate target unchanged at 4.35% at its August meeting.

New loan commitments for dwellings fell 5.4% in number over the June quarter, according to the Australian Bureau of Statistics, with investor commitments down 8.6% against a 3.3% fall for owner-occupiers.

The changes start in July 2027

The property tax measures announced in the May 2026 Budget received Royal Assent in June and commence on 1 July 2027. They apply to residential investment property. The negative gearing measure does not apply to someone buying a home to live in.

From 1 July 2027, excess deductions from established residential investment properties will generally be quarantined rather than offset against salary or other non-residential income, where the relevant ownership interest was last acquired after 7.30pm AEST on 12 May 2026. The quarantined amount can be applied under the new rules against relevant residential property income and capital gains, with amounts that remain unused carried forward. The Act exempts new residential dwellings from the restriction. Treasury released a proposed definition of a new residential dwelling in exposure draft material in August, with consultation closing on 21 August, and the Government has said the final definition and exemptions will be included in primary legislation.

Interests acquired before 7.30pm AEST on 12 May 2026 are covered by the grandfathering arrangements, and the existing treatment continues while the interest is held. This includes properties under a contract entered into before that time where settlement had not yet occurred.

From the same date, the 50% capital gains tax discount for individuals, trusts and partnerships is replaced for relevant gains by cost base indexation and a 30% minimum tax on the real capital gain. Gains accrued before 1 July 2027 retain the existing treatment, and transitional rules apply where a gain spans the commencement date. The Act provides special treatment for eligible new residential dwellings, allowing a choice between the existing 50% discount and the new arrangements, subject to the definition being finalised. The Australian Taxation Office provides guidance on the reforms.

The second tranche of exposure draft legislation also covered the application of the reforms in several more complex circumstances, including jointly held, inherited and post-separation properties. Further legislation is still to come.

How the rules apply

• You already own an investment property, or entered into the contract before 7.30pm on 12 May 2026. The existing treatment is grandfathered for the relevant ownership interest while it is held.
• You buy an established investment property now. From 1 July 2027, excess deductions from the property will generally be quarantined rather than offset against salary or other non-residential income. They can be carried forward for use against relevant residential property income and capital gains.
• Your losses are bigger than your residential property income. The unused amount carries forward to later years rather than being lost.
• You buy a new residential dwelling. New residential dwellings are exempt from the restriction, though the rules defining which properties qualify have not been prescribed yet.
• You are buying a home to live in. The negative gearing change does not apply to you.
• You sell after 1 July 2027. The CGT treatment will depend on the transitional rules, including how much of the gain accrued before and after 1 July 2027. For relevant gains under the new rules, the cost base is indexed for inflation and a 30% minimum tax applies to the real capital gain.

If the numbers for an investment depend on offsetting rental losses against salary income, the contract date matters. Your accountant can confirm how the rules apply before you commit to the purchase.

What the market means for buyers

Cotality reports that higher advertised stock levels and subdued clearance rates are giving buyers greater choice and more room to negotiate, including on terms rather than only price. In its August report, total advertised listings were 24% higher than a year earlier and 8% above the five-year average, while the flow of new listings was 6% lower than a year earlier and 8% below the five-year average. Stock is building because properties are taking longer to sell rather than because more sellers are coming to market.

A lender's valuation can come in below the agreed purchase price, which may increase the amount of cash required at settlement. Buyers relying on a valuation matching their contract price should check what their finance condition requires and when it expires.

Contract terms and settlement costs

Cooling off periods, where they apply, differ between states and territories. Auction purchases generally do not have one, while private treaty purchases may, depending on the jurisdiction.

Contract conditions carry deadlines, and the protection a finance or building and pest clause offers depends on how it is drafted and the law applying to the transaction. Pre approval is not the same as formal approval.

Adjustments for council rates, water charges and strata levies mean the amount required at settlement will usually differ from the purchase price, and duty concessions for first home buyers vary between states and territories.

Having the contract reviewed before signing, as part of the property conveyancing process, is the point at which conditions can still be negotiated. Once signed, changing the terms generally requires the agreement of both parties.

Before you sign

Three things determine the tax treatment of an investment purchase. The contract date, whether the property is grandfathered, and whether it is a new residential dwelling. The scope of the new dwelling exemption has not been settled.