Negative Gearing After 12 May 2026: The 7:30pm Contract Rule

Take two investors. Aisha signed her property contract at 6:14pm AEST on 12 May 2026.

David signed his at 9:47pm AEST on 12 May 2026.

Same building. Same floor plan. Same price ($785,000). Same Melbourne suburb. Same finance from the same lender.

Three hours and 33 minutes apart. Different tax treatment for as long as they own the properties.

Aisha's rental losses can be deducted against her $145,000 salary for as long as she owns the property. David's cannot. From 1 July 2027 his losses are "ring-fenced": they can only offset residential rental income or residential capital gains, such as the gain when he sells.

Over 10 years, with the same $7,200 rental loss each year, David misses out on about $25,000 of tax savings that Aisha gets year by year. He can use his losses later, but not against his salary.

This is the negative gearing rule announced in the 12 May 2026 Budget and passed into law on 26 June 2026.

The Rule in Plain English

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026:

• Who is affected: owners of established residential property bought under a contract entered into after 7:30pm AEST on 12 May 2026.
• From when: rental losses from 1 July 2027 (the 2027–28 income year) onwards.
• What changes: net rental losses can no longer be deducted against salary, wages or other income. They can only offset residential rental income or residential capital gains. Unused losses carry forward indefinitely.
• Who keeps the old rules: property owned or under contract before 7:30pm AEST on 12 May 2026, even if it settled later, for as long as you own it. Since August 2026 that protection also passes to a spouse or co-owner who inherits the property, or a spouse who takes it over after a relationship breakdown.
• New builds: eligible new residential dwellings can still be negatively geared. When you sell one, you can choose the 50% CGT discount or indexing.

Three things matter, in order of importance:

1. The contract date, not settlement, decides your treatment. This matches the usual capital gains tax rule: you acquire a property when you enter into the contract.
2. There is no grace period. A contract exchanged at 7:29pm keeps the old rules. One exchanged at 7:31pm doesn't.
3. New builds are outside the rule. The limit is aimed at established homes.

Aisha vs David — Worked Numbers Over 10 Years

Both investors bought $785,000 apartments. Both rent at $560/week ($29,120/year) — if you're running the numbers on a NSW property, compare your rent to the NSW median first to check your own figure is realistic for the postcode. Both have year-one deductions of about $36,320 (loan interest, council rates, body corporate, insurance, property management and depreciation), so both make a rental loss of $7,200 a year. Loan interest is the biggest part. The Velofy loan calculator shows the interest on your own loan and whether the APRA serviceability buffer (3 percentage points above the loan rate) leaves you headroom. Stamp duty on a $785k Melbourne purchase is another major upfront cost — check it with the VIC stamp duty calculator before signing, or the QLD stamp duty calculator for a Brisbane investment property. Queensland charges investors its general rates: about $28,350 in transfer duty on $785,000, plus the 8% Additional Foreign Acquirer Duty for foreign buyers.

Both earn $145,000, so their marginal rate is 37% plus the 2% Medicare levy: 39%. The 37% rate applies from $135,001 to $190,000. Model your own marginal rate with the Velofy tax calculator. Salary sacrifice into super lowers your taxable income and changes every line in the scenarios below.

Aisha (contract 6:14pm 12 May 2026 — keeps the old rules)

Each year for 10 years, Aisha deducts the $7,200 rental loss against her $145,000 salary:

• Tax saved on the loss: $7,200 × 39% = $2,808 per year
• 10-year tax saving: $28,080
• Cash flow position each year: $7,200 loss minus $2,808 saving = $4,392 out of pocket

David (contract 9:47pm 12 May 2026 — ring-fenced from 1 July 2027)

The old rules still apply to David until 30 June 2027. In year one he also saves $7,200 × 39% = $2,808.

From 1 July 2027, his $7,200 losses can no longer offset his salary. They carry forward:

• Years 2–10: $7,200 × 9 = $64,800 in carried-forward losses
• These losses wait for either (a) residential rental income, which is unlikely while the property runs at a loss, or (b) a residential capital gain, such as when he sells
• Tax saved from his losses during the 10 years: $2,808 (year one only)
• Aisha over the same 10 years: $28,080
• Difference: about $25,272 of tax savings David has to wait for

When David sells, his $64,800 of carried-forward losses reduce the capital gain. The deductions aren't lost, but the tax saving arrives up to nine years later. What it is worth then depends on his tax rate in the year of sale.

What "Ring-Fenced" Means

Ring-fenced means the loss can only be used against certain kinds of income.

Old rules (still apply to grandfathered properties): Investment property loses $7,200 → reduces your taxable income by $7,200 → you pay less tax on your salary.

New rules (established homes contracted after the cut-off, from 1 July 2027): Investment property loses $7,200 → cannot reduce your salary income → loss is carried forward → it is used up only when you either (a) earn rental income from residential property, or (b) make a capital gain on residential property.

The loss is not lost, but it is deferred, possibly by a decade or more. A deduction you can use later does less for your cash flow than one you can use now.

The New-Build Exemption

New residential dwellings are outside the limit. That means:

• A new build bought after 7:30pm AEST on 12 May 2026 can still be negatively geared against your salary
• When you sell it, you can choose the 50% CGT discount or indexing with the 30% minimum tax, whichever gives you less tax
• What counts as "new" is set out in a bill introduced on 14 October 2026, which had not passed as at 19 October 2026. Treasury's August 2026 draft counted homes built on vacant land, extra homes added to a lot that already has one, non-residential buildings converted into homes, and homes bought within 24 months of their first occupancy certificate

The aim is to direct investor demand towards new housing supply. If you're choosing between an established apartment and a new build at the same price, the tax treatment over 10 years tilts towards the new build, provided it meets the definition.

Before and After the Cut-Off at a Glance

Which Side of the Line Are You On?

1. You contracted before 7:30pm 12 May 2026

You keep the old rules for as long as you own the property. Keep a clear record of the contract date and time. Settlement timing doesn't matter, only the contract date. If you sell, the protection ends. If you buy another property after the cut-off, the new property is treated separately under the new rules.

2. You contracted after 7:30pm 12 May 2026 for an established home

The old rules apply until 30 June 2027. From 1 July 2027, your losses are ring-fenced. Holding the property means the carried-forward losses reduce residential rental profits, or the capital gain when you sell.

Whether selling instead makes sense comes down to your numbers: the gain to date, selling costs, the loan payout and your tax rate in the sale year. Our guide to selling an investment property before 1 July 2027 compares sale dates, and the Velofy Property Sale Profit Calculator returns the net walk-away figure for any sale year, including loan interest and the CGT estimate.

3. You're thinking about buying now

Two options worth modelling:

• Buy an established property and accept the ring-fence. Check that the rental yield and expected growth still stack up without the tax saving against your salary.
• Buy a new build — negative gearing and the choice of the 50% CGT discount are kept, provided it meets the new-dwelling definition.

Common Misconceptions to Avoid

"If I settle before 1 July 2027 I'm fine." Wrong. The cut-off is the contract date, not the settlement date. A contract signed on 13 May 2026 that settles in January 2027 is still ring-fenced from 1 July 2027.

"Anything signed on 12 May 2026 is covered." Wrong. The cut-off is 7:30pm AEST that evening, when the Budget was announced, not midnight. A contract exchanged at 9:47pm that night is under the new rules.

"Ring-fencing means I lose the deduction." Wrong. The deduction still exists, but it can only be used against residential rental income or residential capital gains. The dollar value is kept; the timing changes, possibly by many years.

"Any renovated home counts as a new build." Not under the draft. Treasury's August 2026 draft covered homes that add to housing supply: built on vacant land, added to an existing lot, converted from a non-residential building, or bought within 24 months of the first occupancy certificate. Renovating an existing home was not one of them. The final definition is in the bill introduced on 14 October 2026, so check with a registered tax agent before relying on new-build status.