Grandfathered Negative Gearing: Which Properties Are Exempt from the 2027 Changes?

Introduction

The single most important feature of the 2026-27 Budget reforms — from the perspective of existing property investors — is the grandfathering provision. Properties held at 7:30pm AEST on 12 May 2026 (the moment the Treasurer began the budget speech) retain full negative gearing rights against wage income forever. This protection has no time limit and no sunset clause.

The Government's policy rationale for grandfathering is straightforward: changing the rules retrospectively on existing investors would undermine confidence in tax law generally and would generate severe political backlash. By drawing a clear line at the announcement moment, the reform applies only to future investment decisions, where investors can take the new rules into account before committing capital.

For grandfathered investors, the practical message is reassuring: continue what you are doing. But there are edge cases — refinances, renovations, ownership transfers — where the grandfathering rules need to be applied carefully. This article walks through them.

What Grandfathering Means in Practice

Grandfathering, in this context, means that the negative gearing rules as they existed prior to 1 July 2027 continue to apply to your property indefinitely. Specifically:

• Net rental losses on the property remain deductible against your wage and salary income.
• There is no limit on the size of the loss you can offset.
• There is no time limit on how long grandfathering applies.
• There is no cap on the number of grandfathered properties you can hold.

A property does not lose grandfathered status because:

• You refinance the mortgage
• You change tenants
• You renovate or extend the property
• You change property managers
• You move the property from one mortgage product to another
• Interest rates rise and your loss increases

In short: grandfathering attaches to the property in the hands of the owner who held it at 7:30pm 12 May 2026. It is the ownership interest that is grandfathered, not the financing structure.

The 7:30pm 12 May 2026 Cutoff

The cutoff time is precise: 7:30pm Australian Eastern Standard Time on Tuesday 12 May 2026. This is the moment the Treasurer commenced the budget speech in Parliament. The choice of an exact moment (rather than the end of the day, or midnight) is deliberate — it removes any ambiguity about whether a property settling on the same day qualifies.

The cutoff applies to ownership or binding contract:

• If settlement occurred before 7:30pm AEST 12 May 2026 → grandfathered.
• If a binding contract was signed before 7:30pm AEST 12 May 2026 → grandfathered, even if settlement occurs later.
• If a contract was signed after 7:30pm AEST 12 May 2026 → not grandfathered.

Contracts Not Yet Settled

A common edge case: an investor signed a contract for an established property in March 2026, with settlement scheduled for August 2026. Does this property qualify for grandfathering?

The answer is yes, provided the contract was binding at 7:30pm AEST 12 May 2026. The grandfathering test is the date of the binding contract, not the settlement date. Off-the-plan apartments contracted before the cutoff with settlement years later also qualify — and as new builds, they would qualify in any event.

The same logic applies to:

• Auction sales — the contract date is the date of the winning bid (subject to deposit and execution of contract documents).
• Private treaty sales — the contract date is the date the contract was exchanged and became unconditional, or the date conditions were satisfied if signed conditionally.
• Land and build contracts — the contract date is generally the date the land contract was signed, provided it became binding before the cutoff.

Worked example

Anna signed a contract on 1 April 2026 to buy a townhouse in Brisbane for $720,000. Settlement was scheduled for 15 May 2026 — three days after the budget announcement. Anna's property is grandfathered because the binding contract preceded the 7:30pm 12 May 2026 cutoff. Anna can continue to negatively gear the property against her salary income indefinitely.

What Does Not Break Grandfathering

Investors are understandably cautious about whether ordinary property management activities might inadvertently jeopardise grandfathering. Based on the budget papers and Treasury commentary, the following activities do not affect grandfathered status:

Refinancing the mortgage

You can refinance the loan, change lenders, increase or decrease the loan balance (within the limits of normal investment loan increases), or switch between principal-and-interest and interest-only — none of these affect grandfathering.

Renovations and extensions

You can renovate, extend, or improve the property. The renovation does not turn the property into a "new build" for any other investor's purposes, but it also does not strip your grandfathered status. Interest on borrowings to fund renovations on grandfathered property remains deductible.

Change of tenants or vacancy

Tenant turnover, periods of vacancy, and short-term unavailability for letting (for maintenance) do not affect grandfathering, provided the property is held as an investment property with a genuine intention to lease.

Change of property manager

Switching property managers, self-managing, or changing the rental marketing approach has no effect on grandfathering.

What Might Break Grandfathering

Certain actions may cause loss of grandfathered status. The detail will be confirmed in legislation, but Treasury has flagged the following as likely triggers:

Transfer of ownership

If you transfer the property to another person — including to a spouse, family member, related trust, or company — the property's grandfathered status does not transfer with it. The new owner is treated as having acquired the property at the date of transfer, which would be after the cutoff. Their negative gearing rights would be subject to the new rules.

Death and inheritance

On death, the property typically passes to the executor and ultimately to beneficiaries. The grandfathered status is expected to not carry through to beneficiaries — they will be treated as acquiring the property at the date of death (or transfer from the estate). This is consistent with how the existing CGT cost-base rules treat inherited property.

Conversion to main residence and back

If you move into a grandfathered property and convert it to your main residence, then later move out and re-lease it, the grandfathering may be retained — but this is one of the technical points awaiting confirmation in legislation. Speak to a tax adviser before this kind of conversion.

CGT Treatment of Grandfathered Property

Grandfathering applies only to negative gearing. The CGT reforms are a separate measure and apply to all residential investment property, regardless of when acquired. So a grandfathered property sold after 1 July 2027 will still have a split CGT calculation:

• The portion of the gain that accrued before 1 July 2027 gets the 50% discount, calculated using a transitional market valuation at 1 July 2027.
• The portion of the gain accruing after 1 July 2027 is subject to CPI indexation plus 30% minimum tax.

For most grandfathered properties — particularly those held for many years — the post-July 2027 portion of the gain will be a relatively small fraction of total gain. The CGT impact is consequently modest in most cases. See CGT CPI indexation explained and the Michael example in the budget papers.

Documentation Every Grandfathered Owner Needs

The ATO will need to verify grandfathered status when investors continue to claim wage-offset losses post-1 July 2027. Investors should ensure they have the following documentation accessible and well-organised:

• Original contract of sale with execution date clearly shown
• Settlement statement confirming the property is owned by you
• Original title documents and any subsequent dealings
• For off-the-plan purchases: developer contract with binding date
• Any conditional clauses and evidence that conditions were satisfied before the cutoff (where relevant)

Store these securely. The ATO retains the right to audit historical claims, and being able to produce contract-date evidence quickly will streamline any review.