New build vs established: what the 2027 negative-gearing reform really does to an investor

Illustrative modelling, general in nature and based on proposed (not yet enacted) legislation. It isn't personal advice. Clients should confirm their own position with their accountant or adviser.

The outcome up front: for an established investment property, the 2027 reform doesn't just remove the negative-gearing benefit — it reschedules it, and can quietly shrink it. The new-build investor keeps a tax saving they can spend this year. The established investor's identical loss is parked, and only partly clawed back when they sell. Same property, same loss; one benefit is cash now, the other is a smaller credit later — sometimes much smaller.

That distinction — tax savings now versus less, later — is easy to miss in the headlines. So we took a typical investor and put both versions through our engine.

The change in one paragraph

From 1 July 2027 the Government proposes to limit negative gearing on residential property to new builds, and to replace the 50% CGT discount with cost-base indexation plus a 30% minimum tax. Properties held before 7:30pm AEST on 12 May 2026 are grandfathered and unchanged. For anyone buying established housing after budget night, rental losses can no longer be deducted against salary — they're "quarantined" and carried forward to offset future rental income or capital gains only. New builds keep full negative gearing.

The investor we modelled

• A 35-year-old on a $150,000 salary

• A $600,000 residential investment property, with a $500,000 loan and $20,000 of rent a year

• Bought just after budget night, holding it as a long-term investment

  
  

The only thing we change between runs is whether the property is an established dwelling or an eligible new build. Everything else is identical.[^1]

With $20,000 of rent against the loan interest and holding costs, the property runs at a $17,800 loss in year one. The whole story is about what happens to that loss.

Year one: the same property, $6,700 apart

Scenario	Income tax	Does the loss cut salary tax?
No investment property	$39,100	—
Established (post-budget)	$39,100	No — quarantined
New build (eligible new dwelling)	$32,300	Yes

Two things jump out:

1. The established investor pays exactly the same tax as someone who owns no property at all — about $39,100. Their $17,800 loss does nothing for this year's salary tax.

2. The new-build investor saves around $6,700 in the first year, because that same loss still reduces their assessable salary.

   
   

That ~$6,700 is the modern, post-reform version of the negative-gearing benefit — and under the proposal it now exists only for new builds and grandfathered holdings.

It compounds: the quarantine pool

The established investor's loss isn't gone — it carries forward into a pool that can only ever be released against future residential rent or a residential capital gain:

Year	Quarantine pool
Year 1	$17,800
Year 2	$34,500
Year 3	$50,000

After three years the established investor is sitting on roughly $50,000 of carried-forward losses doing nothing for their cash flow, while the new-build investor has banked about $18,000 of tax savings over the same period. Same bricks, same rent, very different after-tax experience — purely because of how the dwelling is classified.

So far it looks like a clean win for the new build. The obvious hope is that the established investor makes it all back at sale. Let's test that.

What happens when we sell?

This is where the headline — "established investors get nothing" — gets interesting in both directions.

Let's give the property a realistic 5% a year of growth and 3.5% inflation, and hold it for five years before selling. By the sale year the established investor's quarantine pool has grown to about $77,000, and the property shows a ~$140,000 paper gain.

But here's the part the headlines miss. From 2027 the gain isn't simply discounted — the cost base is indexed for inflation. Strip out 3.5% a year over five years and that $140,000 nominal gain becomes only about $28,000 of taxable gain. Most of the "gain" was just inflation.

That's good for the tax bill — but for the established investor it cuts both ways, because the quarantine pool can only be released against a taxable residential gain, and there's now only ~$28,000 of it to soak up a ~$77,000 pool:

At sale (after five years)	Established	New build
Paper (nominal) gain	~$140,000	~$140,000
Taxable gain after 3.5% indexation	~$28,000	~$28,000
Quarantine pool available	~$77,000	$0
Pool used against the gain	~$28,000	—
Extra tax in the sale year	~$0	~$10,100
Pool left stranded	~$49,000	—

The established investor shelters the entire taxable gain and pays no extra tax at sale — but about $49,000 of quarantined losses are stranded, because there simply wasn't enough taxable gain to use them against. They carry forward, but only against future residential rent or gains the client may never have. The new build, having already banked its benefit as cash, pays about $10,100 of CGT on the same small taxable gain.

The TL;DR: the established investor's benefit isn't just delayed to the sale — once you index the cost base, the taxable gain it needs to unlock that benefit can be too small to use it all. New build gets cash now; the established investor gets less, later, and may strand the rest. Whether that trade-off works depends on the client — which is exactly the conversation worth having.

Read it in one line: the new build (green) banks its benefit as cash year by year; the established investor (red) saves nothing until the sale, and then only the slice of the pool the small taxable gain allows — the rest is stranded. Tax saved now versus less, later.

A fair question: it's the same loss, so why does the established line land so far below the new build's? Because the benefit can only be cashed in against a taxable gain — and indexation shrinks that to ~$28,000. The established investor uses what it can and strands the rest. And there's a second thumb on the scale: none of these figures are discounted to present value. The new build's savings arrive years earlier, and a dollar saved today is worth more than a dollar saved (or stranded) at sale, because it can be spent, offset against the loan, or reinvested in the meantime. On both counts, the new build's steady cash-now comes out ahead.

Why this matters for advice

For the established investor, the conversation isn't "you've lost the benefit" — it's "your benefit is locked up, and you may not get all of it back." That reframes everything: cash-flow planning during the hold, whether there'll be enough taxable gain (after indexation) to release the pool, and the real risk that part of it is stranded — usable only against future residential rent or gains the client may never have. For a new build, the benefit is cash in hand each year — worth more for its timing, and not hostage to what the gain looks like at sale.

These are exactly the trade-offs that are invisible in a headline and obvious the moment you model them. That's the point of amply: take a change everyone is arguing about in the abstract, run it for this client, and turn it into a number you can actually advise on.

A note on the modelling: this is illustrative and based on proposed law, which may change before it's enacted. Our engine applies cost-base indexation to both dwellings' gains; in reality an eligible new dwelling may instead elect to keep the 50% CGT discount — but with modest real growth, indexation is usually the better choice anyway, so it makes little difference here. The robust insight is that indexation shrinks the taxable gain, which caps how much of the established investor's quarantine pool can ever be released. Always confirm individual outcomes with a qualified accountant or adviser.

Footnotes

[^1]: Key assumptions behind the figures. Property capital growth is assumed at 5% a year and inflation (CPI) at 3.5% a year. From 2027 that CPI indexes the post-2027 cost base, which is why the ~$140,000 nominal gain becomes only ~$28,000 of taxable gain. The loan is a $500,000 principal-and-interest loan at 6%, which is why the new build's yearly saving tapers as the loan pays down. Salary and rent grow with CPI; holding costs are kept simple. All dollar figures are nominal, rounded to the nearest $100, and not discounted for the time value of money — so the new build's earlier savings are worth more in real terms than the same dollars realised (or stranded) years later at sale. "Year one" is FY 2027-28.