The 2026 Federal Budget may change how investors compare new builds, established properties and grandfathered assets. From 1 July 2027, the proposed reforms would limit negative gearing to new residential properties. Properties held before budget night would keep their current tax treatment.
This makes property type important and shows why tax depreciation still matters. Eligible capital works and plant and equipment deductions can affect cash flow, tax planning and future CGT records.
The key point is how those deductions work with the proposed negative gearing rules.
What is a grandfathered property for negative gearing?
A grandfathered property is an investment property that keeps its current tax treatment because the owner held it before the proposed rule change.
Under the 2026 Federal Budget proposal, residential investment properties held before 7:30 pm AEST on 12 May 2026 would keep access to negative gearing. This means eligible rental losses may still offset other taxable income, such as salary or business income.
A grandfathered property may allow investors to:
continue using rental losses to reduce other taxable income
claim eligible capital works deductions for the building structure
claim eligible plant and equipment depreciation where current rules allow
keep depreciation records for annual tax returns and future CGT calculations
review hold or sell decisions with clearer tax records
Grandfathering may not transfer to a future buyer. If the property is sold after the new rules begin, the next owner may fall under the proposed rules for established properties.
Investors with grandfathered property negative gearing benefits should review their depreciation schedule, loan costs, rental income and long-term plans before making major decisions.
What is a new build property for tax purposes?
A new build property is a residential investment property that adds new housing supply. Following the May 2026 Federal Budget, the Australian government announced historical tax reforms that restrict negative gearing solely to newly constructed homes starting 1 July 2027.
A new build may include:
a newly constructed house or apartment
an off-the-plan apartment bought before completion
a new dwelling built on vacant land
a duplex or townhouse project that increases the number of homes on the site
a substantial development that creates additional residential dwellings
For investors, new build property tax treatment may be more attractive because new builds are expected to keep negative gearing access from 1 July 2027. New properties may also offer stronger tax depreciation through capital works deductions and eligible plant and equipment depreciation.
The key test is whether the property adds new housing supply under the proposed rules.
What is an established property for tax purposes?
An established property is a residential property that has already been built, sold, occupied or used. It usually does not add new housing supply.
Established property may include:
an existing property bought as an investment
an older apartment or townhouse
a second-hand residential property
a renovated home that does not create extra dwellings
a property bought after the proposed cut-off that does not qualify as a new build
Under the proposed 2026 Federal Budget changes, newly purchased established properties may no longer qualify for negative gearing from 1 July 2027.
Eligible expenses, capital works deductions and some depreciation claims may still apply. However, rental losses may need to be carried forward. This means they may not reduce salary, wages or business income straight away.
New build established property tax difference
The main difference between new build property tax and established property tax is how rental losses may be used, with negative gearing occurring when the ongoing costs of owning an investment property are higher than the rental income it generates.
New builds may keep negative gearing access from 1 July 2027. Newly purchased established properties may have losses carried forward instead.
Depreciation can still apply across all three categories. The key issue is timing.
This makes property type, purchase timing and depreciation records more important under the proposed 2026 Federal Budget changes, as grandfathered rules split the market into one setting for existing investors and another for future investors.
Property type | Negative gearing outcome | Depreciation outcome | Investor impact |
|---|---|---|---|
Grandfathered property | Likely to keep the current treatment until sold | Existing eligible depreciation claims may continue | Preserves current tax planning and cash flow benefits |
New build | Likely remains eligible for negative gearing | Often stronger capital works and plant and equipment deductions | May improve annual after-tax cash flow |
Established property | May have losses quarantined if bought after key dates | Depreciation may still apply, but loss use may be limited | Requires stronger records and cash flow planning |
Why tax depreciation schedules may become more important
Tax depreciation schedules may become more important if the proposed changes proceed.
Investors may need clearer records to track eligible deductions, carried-forward losses and future CGT impacts, especially as grandfathering can also extend to capital gains tax changes, with new settings usually applying only to profits accrued from the policy start date.
A depreciation schedule helps separate the building structure from eligible assets. This matters because capital works and plant and equipment follow different tax rules.
For new builds, it may help investors claim more deductions from the start. For established properties, it may help track deductions even if rental losses are carried forward.
For grandfathered assets, it may support ongoing claims and future CGT treatment that is calculated under adjusted rules, including a discount aligned with inflation, which can reduce the effective tax benefit on sale.
The proposed changes do not remove the need for depreciation. They make accurate records more important for cash flow, tax planning and long-term investment decisions. To get the records you need, get a free quote today and consider getting a depreciation schedule from Thrifty Tax.
Depreciation record | Why it matters | Investor benefit |
|---|---|---|
Capital works deductions | Tracks eligible building structure and fixed improvements | Supports annual claims and long-term cost-based records |
Plant and equipment depreciation | Separates eligible removable assets from the building | Helps identify faster deductions where current rules allow |
Renovation costs | Records improvements made during ownership | Helps separate repairs, capital works and future CGT records |
Carried-forward losses | Tracks losses that may not be used straight away | Helps investors understand future tax offsets |
Sale and CGT records | Shows what has already been claimed | Helps tax advisers calculate capital gains more accurately |
FAQ
What does grandfathered property negative gearing mean?
It means an eligible investment property may keep its current negative gearing treatment because the owner held it before the proposed rule change. Rental losses may still offset other taxable income.
What is the difference between a new build and an established property?
A new build generally adds new housing supply. An established property has already been built, sold, occupied or used and usually does not create extra dwellings.
Will established properties still get tax deductions?
Yes, established properties may still have eligible expenses, capital works deductions and some depreciation claims. However, rental losses may need to be carried forward.
These deductions can be helpful for cash flow, but they do not replace the need to assess the property’s broader investment potential.
Are new builds better for tax depreciation?
Often, yes. New builds usually have newer construction costs and eligible plant and equipment assets.
This may support stronger depreciation claims, which are common in a house and land package or other brand-new construction because everything is newly built.
Why does a depreciation schedule matter under the proposed tax changes?
A depreciation schedule helps investors identify eligible deductions and keep records for tax claims, carried-forward losses and future CGT calculations, and advisers or quantity surveyors with relevant expertise can help prepare accurate schedules and CGT records.
Should property investors review their records before 1 July 2027?
Yes, investors should review purchase dates, contracts, depreciation schedules, renovation records, loan costs and rental income before the proposed rules begin.
