Last updated: 12 May 2026
2026-27 Budget · Landlords
Existing landlords: how grandfathering actually works
If you owned a residential rental property at 7:30pm AEST on 12 May 2026, the Budget's negative gearing changes don't apply to you while you continue to hold that property. The capital gains tax changes work differently – the new rules apply only to the portion of your gain accruing from 1 July 2027 onwards. Here's how the two sets of rules interact for existing landlords.
Negative gearing – your treatment is locked in
- Properties owned at 7:30pm AEST 12 May 2026 keep full negative gearing rights against your other income.
- Grandfathering applies to the specific property, not to you. Sell it and the replacement is under new rules.
- Refinancing the loan, raising rent, vacating tenants or undertaking minor renovations doesn't affect grandfathering.
- Treasury notes that over half of negatively-geared properties are typically sold or become positively geared within four to five years – grandfathering benefits don't last forever in practice.
Capital gains tax – split treatment
Unlike negative gearing, the CGT changes aren't fully grandfathered for existing investors. The rules split your gain in two:
- Pre-1 July 2027 gain: the 50% CGT discount applies as it does today.
- Post-1 July 2027 gain: cost base indexation and the 30% minimum tax on real gains apply.
- The asset's value at 1 July 2027 becomes the new cost base for the post-2027 calculation.
- You can either get a valuation at 1 July 2027 or use an ATO apportionment formula based on the average return over the holding period.
Worked example: Sara, owner since 2018
Sara bought a Melbourne investment unit in 2018 for $480,000. As at 1 July 2027, the unit is worth $620,000. She sells it in 2030 for $720,000.
Pre-2027 gain: $620,000 – $480,000 = $140,000. This portion still gets the 50% discount, so $70,000 is added to her assessable income.
Post-2027 gain: $720,000 – $620,000 = $100,000 nominal. After CPI indexation of the $620,000 cost base over three years, the real gain might be (say) $75,000. That $75,000 attracts at least the 30% minimum tax if Sara's marginal rate is lower.
Sara's negative gearing arrangements throughout the holding period are unaffected because she bought before Budget night.
Common scenarios
| Scenario | Impact |
|---|---|
| Refinance loan | No effect on grandfathering |
| Switch property manager | No effect |
| Move into the property (becomes PPOR) | Negative gearing irrelevant while you live there; main residence CGT exemption applies for the period it's your home |
| Transfer to spouse | Treated as a disposal for CGT and likely loses grandfathering; seek advice |
| Inherit a grandfathered property | Deceased estate rules apply; CGT cost base typically rolls over but grandfathering treatment may not |
| Knock-down rebuild (new dwellings) | May qualify for new-build carve-out; consult ATO guidance once released |
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Related reading
- Negative gearing limited to new builds
- CGT discount replaced with indexation and a 30% minimum tax
- Property investors: what changes for your portfolio
Frequently asked questions
I already own an investment property. Do the new rules affect me?
For negative gearing: no, not while you continue to hold the property. Properties held at 7:30pm AEST on 12 May 2026 are grandfathered. For CGT: gains accrued up to 30 June 2027 still attract the 50% discount, but any gain from 1 July 2027 onwards is calculated under the new indexation-plus-minimum-tax regime when you sell.
Does the grandfathering survive a refinance?
Yes. Refinancing your loan doesn't dispose of the property for tax purposes. The grandfathering attaches to the property while you hold it. Interest deductibility against rental losses continues under the old rules.
What if I add a second property after 12 May 2026?
Your existing property keeps its grandfathered treatment. The new property follows the new rules: from 1 July 2027, you can only negatively gear if it's a new build, and CGT on sale uses indexation plus the 30% minimum tax.
If I sell and buy again, do I lose grandfathering?
Yes. Grandfathering applies to the specific property you held at Budget night. Once you dispose of it, any replacement is treated as a fresh acquisition under the new rules.
Do major renovations affect my treatment?
A renovation that produces a genuine new build (e.g. a knock-down rebuild creating new dwellings) may qualify under the new-build carve-out for negative gearing. Cosmetic renovations don't change anything – you keep your grandfathered status. Detailed transitional guidance from the ATO is expected following consultation.
Source: Budget Paper No. 1, Statement 4 (pages 152-158), Australian Treasury, 12 May 2026.
Disclaimer: This information is general in nature and does not constitute financial, legal, or tax advice. Calculations are estimates only and may not reflect your exact circumstances. Eligibility criteria and dollar amounts may change without notice. Always verify with the relevant government authority, your mortgage broker, or a licensed financial adviser before making decisions.