Negative Gearing Rules for Investors After the 2026 Budget

The 2026 Federal Budget limits traditional negative gearing for established residential investment properties bought after 7:30 pm on 12 May 2026, with the new restriction starting from 1 July 2027. Properties already owned, or expected to be treated as under signed contract before that Budget night cut off, should keep the existing negative gearing treatment for that property. New builds, super fund property, some widely held trust structures, build to rent projects and approved government housing scheme investors are treated differently, so the property type and contract timing matter just as much as the price.

For a broader look at the Budget 2026 negative gearing and CGT changes, the practical message is simple: before you sign, check what you are buying, when the contract becomes binding, and what records your conveyancer will keep.

What changed for Melbourne property investors after Budget night?

The Budget split residential investors into three main groups. The group you sit in depends on ownership, contract timing and whether the property is established or newly built.

Pre Budget owners are expected to keep the old negative gearing treatment for that property. If you already held an established residential investment property before Budget night, the announced rules do not remove your existing ability to offset rental losses against other income for that property.

Pre Budget under contract buyers are the group causing the most questions. If your signed contract was in place before 7:30 pm on 12 May 2026, but settlement is still coming, you are expected to fall within the protected group. That could include a 60 day private sale, a longer townhouse settlement, or an off the plan apartment that will not settle for another year.

Post Budget buyers of established homes face the new restriction from 1 July 2027. Rental losses may still be used against residential property income and carried forward, but they are not expected to reduce wages, business income or interest income in the old way.

Melbourne investors also need to keep state taxes on the radar. Federal negative gearing is only one part of the holding cost picture, especially when land tax and vacant residential land tax changes for 2026 may affect the same investment.

A further exception is expected for eligible new builds that genuinely add to housing supply. This may include building on vacant land, or demolishing an existing dwelling and replacing it with a greater number of dwellings, such as a duplex or townhouse development, although ordinary renovations or a like for like rebuild may not qualify.

What does ‘under contract’ mean for grandfathering?

For Victorian conveyancing, ‘under contract’ usually means the buyer and vendor have both signed and the contract has been exchanged or otherwise become binding. A verbal nod from an agent is not enough.

For private treaty sales, the key evidence is the signed contract, the exchange confirmation and the deposit receipt. If you signed on 10 May but the vendor only counter signed after Budget night, that timing needs careful review.

For auctions, the contract is usually signed at or soon after the fall of the hammer. If the auction contract was completed before the Budget night cut off, the contract date should be clear.

For off the plan purchases, timing can feel odd because settlement may be years away. The contract date still matters, so investors should keep a full record of exchange, deposit handling and vendor countersigning. Our guide to off the plan conveyancing in Melbourne explains why these documents matter long before the apartment or townhouse is finished.

In our practice, we’ve seen the date and time issue come up most often when buyers exchanged within days of Budget night. A clean contract file, with emails and signing records, can be the difference between a calm accountant conversation and a messy one later.

What counts as a new build under the negative gearing rules?

New builds are the main investor carve out. If you buy a qualifying new residential property after Budget night, the announced rules are designed to keep negative gearing available and preserve a CGT choice when you sell.

A new build will usually mean a property bought off the plan and completed under your contract, or a property bought from the developer as its first sale after construction. A recently built home is not automatically a new build if it has already been sold to another owner.

Substantial renovations need care. Marketing language such as ‘brand new renovation’ or ‘fully rebuilt’ does not answer the tax question on its own. Your conveyancer can check the title, contract, Section 32 vendor statement, planning and building disclosures, but your accountant should confirm the tax treatment before you rely on it.

How does CGT change from 1 July 2027?

From 1 July 2027, the announced CGT reform replaces the 50 per cent CGT discount with inflation based cost base indexation and a minimum 30 per cent tax on gains. The change is expected to apply to gains arising after that date.

For assets already held before 1 July 2027, the gain may need to be split between the old and new treatment. That makes record keeping more than a tidy habit. Purchase price, stamp duty, legal fees, improvement costs, selling costs and valuation evidence may all affect the final calculation.

New build investors are expected to receive a choice between the 50 per cent discount and the new method when they sell. That choice could be valuable, but it should be modelled by an accountant rather than guessed from a headline.

Are SMSFs, trusts and build to rent treated differently?

Some ownership structures and housing models sit outside the ordinary individual investor rules. That does not make them simple.

Residential property held in super, including an SMSF, is expected to be treated differently from an individual buying an established rental in their own name. SMSF property also comes with strict rules around sole purpose, related parties, borrowing and title structure. If you are buying property with your SMSF in Victoria, your accountant, SMSF adviser and conveyancer should be speaking early.

Trusts also need proper setup. A widely held trust is not the same thing as a family discretionary trust, and the Budget also announced a separate minimum tax for discretionary trusts from 1 July 2028. If tax planning is part of the reason you are buying Melbourne property in a trust, get accounting advice before the contract name is finalised.

Build to rent and approved government housing schemes are narrower carve outs. They tend to suit larger operators more than a mum and dad investor buying one apartment near a tram line, but they may still matter for managed projects.

What evidence should investors keep?

The safest file is the complete file. If grandfathering may matter, keep these records for as long as you hold the property:

Signed contract of sale, including all signing pages.
Contract date and, where recorded, contract time.
Agent or conveyancer exchange confirmation.
Deposit receipt.
Section 32 vendor statement supplied before signing.
Any PEXA or settlement records showing completion.
Settlement statement and adjustment statement.

Do not rely on your inbox search five years from now. Ask your conveyancer for a complete copy after settlement and store it with your tax records.

Example: Brunswick townhouse signed before Budget night

Say an investor signed a contract for a Brunswick townhouse on 8 May 2026, with settlement set for late July 2026. If contracts were properly exchanged before 7:30 pm on 12 May 2026, the purchase is expected to sit inside the protected group, even though settlement occurs after Budget night.

The key evidence is not the suburb, the loan approval or the rental estimate. It is the contract record. The investor should keep the signed contract, exchange email, deposit receipt and settlement statement so their accountant can support the negative gearing position after 1 July 2027.

Five steps for Melbourne investors now

Identify your group. Are you a pre Budget owner, a pre Budget under contract buyer, or a post Budget buyer?
Check whether the property is established or new. Do not treat ‘near new’ as enough.
Save the contract evidence. Contract date, exchange records and deposit records matter.
Ask your accountant to model the tax result. Conveyancers confirm property and contract facts; accountants model tax.
Get the Section 32 reviewed before signing. Tax settings do not fix a risky contract, weak title, missing owners corporation records or poor special conditions.

Frequently Asked Questions

Is negative gearing abolished from 1 July 2027 for all property investors?

No. The announced restriction applies to established residential investment properties bought after Budget night, with the new treatment starting from 1 July 2027. Existing owners, expected protected pre Budget contract holders, new build investors, super fund property and some other exempt structures are treated differently.

What does ‘under contract’ mean for negative gearing grandfathering?

In Victoria, being under contract usually means the buyer and vendor have both signed and the contract has been exchanged or become binding. For auctions, that is usually at or soon after the fall of the hammer. For off the plan purchases, the exchange date matters even if settlement is much later.

Does negative gearing grandfathering depend on settlement before 1 July 2027?

No, the key issue is expected to be the contract or ownership position before the Budget night cut off, not the later settlement date. This is why off the plan buyers and long settlement investors should keep exchange records carefully.

What counts as a ‘new build’ for negative gearing after the Budget?

A qualifying new build will generally be a property bought off the plan and completed under the contract, or bought from the developer as the first post construction sale. A resale of a recently built property may not qualify. Substantial renovations need tax advice once the final legislation is settled.

How does the CGT change affect investors?

From 1 July 2027, the announced CGT reform replaces the 50 per cent discount with inflation based indexation and a minimum 30 per cent tax on gains. Gains up to 1 July 2027 are expected to be treated separately from gains after that date. New build investors are expected to have a choice between the old and new methods.

Can SMSF investors still negatively gear residential property?

Residential property held through super is expected to sit outside the ordinary individual investor restriction. That does not make SMSF property simple. SMSF purchases need careful setup, including the right buyer name, bare trust documents where borrowing is used, and compliance advice.

What evidence do I need to prove my property is grandfathered?

Keep the signed contract, exchange confirmation, deposit receipt, Section 32 vendor statement, settlement statement and any PEXA records. These documents show when the deal became binding and when settlement occurred. Store them for as long as you hold the property.

About the Pearson Chambers Conveyancing team

Pearson Chambers Conveyancing is a Melbourne focused conveyancing team helping buyers, sellers and investors move from contract review to settlement with less stress. We regularly review Section 32 vendor statements, auction contracts, off the plan documents, SMSF structures and settlement files for Victorian property purchases. Negative gearing grandfathering turns on contract facts, property type and evidence, which are exactly the details our team handles day to day.

Sources we consulted

Buying or holding investment property in Melbourne?

If you are buying an investment property, holding a pre Budget contract, or trying to work out whether a purchase is established, new build, SMSF or trust based, Pearson Chambers Conveyancing can help you get the contract facts clear before you commit.

Email: contact@pearsonchambers.com.au

General information only, current as at the date of publication. Victorian conveyancing rules and legislation change frequently. Please contact the Pearson Chambers Conveyancing team for advice on your specific contract.