If you own — or are about to buy — an established residential rental property in Australia, a reform that took effect on 12 May 2026 now sorts you into one of two camps for how your rental losses can be used. Here's what changed and why it matters.
What actually changed
Negative gearing has long let Australian property investors offset a rental loss — where deductible expenses exceed rental income — against their other income, like salary. From 12 May 2026, 7:30pm AEST, that changed for established dwellings purchased from that point forward. Losses on those properties are being progressively quarantined: restricted to offsetting rental income and capital gains from residential property, rather than salary or wages.
The reform doesn't apply retroactively. Anyone who signed a contract before the cutoff keeps the previous rules for that property, indefinitely. And new builds — regardless of when you buy one — sit outside the change entirely, since the policy is aimed at established housing stock, not new supply.
The three outcomes
Every established-dwelling investor now falls into one of three positions, decided at the moment the purchase contract is signed:
- Grandfathered — contract signed before 12 May 2026, 7:30pm AEST. The previous rules apply indefinitely.
- Quarantined — established dwelling, contract signed on or after the cutoff. Losses are restricted from 1 July 2027.
- Exempt (new build) — a genuinely new dwelling, exempt from the quarantine rules regardless of purchase date.
Why there's a gap between the cutoff and the restriction
The reform was legislated with a purchase-date cutoff of 12 May 2026, but the actual loss restriction for quarantined properties doesn't start biting until 1 July 2027 — the start of the following full financial year. That means there's a real window right now: some investors already know which camp they're in, but haven't yet felt the practical effect of quarantining. It's exactly the window worth using to get your own numbers straight, before it becomes urgent.
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Check my regime freeWhat this means day to day
If you're grandfathered or exempt, nothing about how you use a rental loss changes. If you're quarantined, the practical shift (from 1 July 2027) is that a loss on that property can no longer reduce your taxable salary — it can only offset rental income or a capital gain from residential property, and any amount you can't use carries forward automatically to future years rather than disappearing.
None of this changes how you should keep records in the meantime — you still want clean, categorised income and expense tracking regardless of which camp you're in, since that's what determines the size of the number being offset or quarantined in the first place.
This guide reflects the announced reform rules as a general explainer and isn't a substitute for advice from your accountant about your specific situation.