Australia’s property tax rules are changing, but there is no new standalone property tax. The key changes affect residential investment properties, including negative gearing, capital gains tax (CGT), and the tax treatment of new builds compared with established homes from 1 July 2027.
The changes mainly affect people buying or building residential property as an investment, rather than owner-occupiers. The Federal Treasury’s 2026–27 tax changes summary outlines the new negative gearing and CGT rules that apply from 1 July 2027.
What applies now
Under the current general rules, if you own a residential rental property that is rented out or genuinely available for rent, you can claim a range of expenses. These may include interest on loans, council rates, water charges, land tax, and repairs and maintenance, provided the expenses meet the ordinary tax requirements. Holding costs may apply to land purchased for the construction of a rental property, not only to a completed property that is already generating rental income.
This means that someone building an investment property may be able to claim certain holding costs before construction is complete, depending on the circumstances and the nature of the expense.
However, not every cost is immediately deductible. Ordinary deductible expenses and capital expenses exist. Building and structural costs are generally claimed over time rather than all at once. These may include construction expenditure, structural improvements, major renovations, driveways, fences, and similar works. Capital works deductions for residential rental properties are generally spread over 25 or 40 years, and that no deduction is available until construction is complete.
This is also the tax environment in which negative gearing has traditionally operated. When deductible rental-property expenses exceed rental income, investors have generally been able to offset the resulting loss against other assessable income, subject to the ordinary tax rules. This is the broad mechanism commonly referred to as negative gearing.
Capital gains tax is another important part of the picture. Under the current general rules, individuals and trusts can generally access the 50 per cent CGT discount if they have held the asset for at least 12 months, subject to the detailed tax rules and applicable exclusions.
What changes from 1 July 2027
From 1 July 2027, the federal tax treatment of residential investment property will change significantly.
Negative gearing for residential property will be limited to new builds from that date. For investors who buy established housing after 12 May 2026, losses will no longer be deductible against non-residential income, such as wages. Instead, those losses may be applied only against residential property income, including capital gains, while excess losses may be carried forward to future years.
Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, if deductible amounts relating to residential dwellings exceed the assessable income from those dwellings, the excess is not deductible in that year. Instead, it becomes a quarantined amount that may be used in later years or against certain residential property gains.
This represents a major shift from the way negative gearing has traditionally been understood.
Why new builds are treated differently
These new rules are designed to encourage the creation of additional housing supply.
New builds can continue to be negatively geared both before and after 1 July 2027. The legislation also preserves more favourable treatment for new residential dwellings under the capital gains tax changes. From 1 July 2027, the current 50 per cent CGT discount will generally be replaced by an inflation-based approach and a minimum 30 per cent tax rate on real capital gains. However, investors in new builds can choose between the existing 50 per cent discount and the new inflation-based arrangements.
In short, while the broader tax settings become less favourable for newly acquired established residential properties, new builds continue to receive more favourable treatment.
Grandfathering also matters
One important detail is that existing investors will not all be affected in the same way.
Properties held before 7:30 pm AEST on 12 May 2026 are exempt from the new negative gearing rules. The legislation also contains grandfathering provisions tied to the acquisition date of certain residential dwellings.
Timing therefore matters. Someone who acquired an established investment property before the cut-off is in a different position from someone who purchases an established residential investment property after that date.
What if you are building a home to live in?
There is much confusion in this area. These investment-property tax changes are primarily relevant to people who rent out the property or intend to use it to produce income. If you are building a home to live in, it’s different. Keep in mind that main residence rules for building or renovating are separate, and the rental-property deductions discussed above generally do not apply in the same way to your own home.
Conclusion
From 1 July 2027, the tax treatment of residential investment property in Australia will become more favourable to new builds than to newly acquired established properties. While the existing rules for rental deductions, negative gearing, and CGT broadly remain in place until then, the changes will make the distinction between new and established investment property much more important.
That said, tax should not be the only factor in the decision. Location, total project cost, expected rental return, construction timing, holding costs, and long-term investment goals all need to be considered.
If you are thinking about building an investment property in Perth, it is worth getting tax and financial advice early, then making sure the project itself stacks up from a practical building perspective as well. IQ Construction can help you assess the site, design approach, build pathway, and overall feasibility so you can move forward with greater clarity and confidence.