Negative Gearing Explained:
Negative gearing allows a property investor whose rental income is less than the costs of holding the property (interest, maintenance, depreciation) to deduct the loss from their other income, including wages. The concession has been a defining feature of the Australian property investment market for decades. In 2025, 83 per cent of new investor loans went to existing properties rather than new construction, meaning the bulk of the concession has flowed to purchases that do not add to housing supply. Since 1999, Australian housing prices have risen more than twice as fast as average full-time earnings, and between 2001 and 2021 the home ownership rate for households aged 25 to 34 fell by seven percentage points.

What Changed

From 1 July 2027, losses on established residential investment properties can only be deducted against income from other residential properties, including any capital gains on those properties. Losses can no longer be set off against wages, salary, or other unrelated income.

Where losses exceed residential property income in a given year, the excess can be carried forward and applied against future residential property income. The deduction is preserved, but its timing is shifted to future years when the property is income-producing or when it is sold.

New residential builds are exempt. Investors who buy a new build retain full negative gearing, including against wages and other income, as well as the choice between the 50 per cent CGT discount and the new indexation arrangements.

The changes apply to individuals, partnerships, companies, and most trusts. Widely held trusts (including most managed investment trusts) and superannuation funds (including SMSFs) are excluded. Commercial property and other asset classes such as shares are not affected.

Transitional Arrangements

• Properties held before Budget night (7:30pm AEST 12 May 2026), including those under contract but not yet settled, can continue to be negatively geared under the existing rules indefinitely.

• Established properties purchased between Budget night and 30 June 2027 can be negatively geared during that window, but not from 1 July 2027 onwards.

• Established properties purchased from 1 July 2027 cannot be negatively geared. Losses must be carried forward.

The transitional arrangements deliberately avoid creating a buy-or-sell deadline. Because pre-Budget investments are grandfathered indefinitely and the new rules apply prospectively, there is no incentive to bring forward purchases or sales.

Defining a New Build

A new build is a property that genuinely adds to housing supply. Eligible:

• Newly constructed apartments bought off the plan

• Duplexes built through a knock-down rebuild replacing a single freestanding house

• Any residential construction on previously vacant land

• A newly built property occupied for less than 12 months before its first sale

Not eligible:

• A freestanding house built through a knock-down rebuild replacing an older, smaller freestanding house

• Substantial renovations or extensions to an existing property

• Granny flats built adjacent to an established property

• A property occupied for more than 12 months before being sold to a subsequent investor

The exemption attaches to the original purchaser only. A subsequent buyer of the same dwelling cannot access negative gearing on it.

Further exemptions are also available for private investors who support government housing programs, such as the provision of affordable housing.

Who's Affected

Around 1 per cent of taxfilers acquire negatively geared properties each year, equivalent to around 230,000 individuals in 2022-23. Every existing property owner can continue to negatively gear any property they held before 12 May 2026. All future investors retain access to negative gearing on new builds.

For a buyer of an established property after the announcement, the change in deductibility timing depends on income and rental losses. A 2022-23 average negative gearing loss for an individual in the top tax bracket was around $14,390, equivalent to a 3.1 per cent rental yield against a 5.7 per cent interest rate on a $1 million property. A $14,810 loss is worth around $4,761 to a person on $80,000 of other income, or $6,961 to a person on $210,000. Under the new rules, the loss is carried forward and applied against future residential property income or capital gains rather than wages.

Housing Impact

Combined with the CGT changes, Treasury modelling estimates the negative gearing reform will result in around 75,000 additional owner-occupiers over the next decade, equivalent to reversing about ten years of decline in the home ownership rate. House price growth is expected to slow by roughly 2 per cent over a couple of years before recovering. Rents are expected to rise by less than $2 per week for a household paying the median rent. The Government's housing supply measures, including the $2 billion Local Infrastructure Fund and the foreign buyer ban extended to mid-2029, are expected to more than offset any small drag on supply from the tax changes.

For renters, Commonwealth Rent Assistance has been increased twice since 2023, lifting the maximum rate for a single person by more than $20 per week. Maximum rates of Rent Assistance have risen by over 50 per cent since March 2022 once indexation is included.

Key Figures

• Negative gearing on established residential property limited to new builds from 1 July 2027

• All pre-Budget investments grandfathered indefinitely

• 83 per cent of new investor loans in 2025 went to existing property rather than new builds

• ~230,000 individuals acquire negatively geared properties each year (about 1 per cent of taxfilers)

• 75,000 additional owner-occupiers projected over the decade (combined with the CGT reform)

• House price growth expected to slow by around 2 per cent over a couple of years

• $3.5 billion budget improvement over the forward estimates (combined with the CGT reform)

Sources

[1] Treasury fact sheet: Negative Gearing and Capital Gains Tax Reform

[2] Budget 2026-27: Tax reform for workers, businesses and future generations

[3] Budget 2026-27 Overview