Negative Gearing - What Actually Changes

The headlines say negative gearing is "gone." For most investors, that is not what the new law does.

The Tax Reform No. 1 Bill 2026 passed both houses of Parliament on 25 June 2026 and received Royal Assent on 26 June 2026. It is now law - though the negative gearing changes do not take effect until the 2027-28 income year, so nothing changes in the meantime.

From 1 July 2027, negative gearing concessions for residential property will generally be limited to new residential dwellings and certain eligible housing investments.Residential properties held before 7:30pm AEST on Budget night, 12 May 2026, will be grandfathered. Owners of those properties will continue to be able to offset rental losses against salary, business income and other assessable income.Investors acquiring an established residential property after Budget night will be affected from 1 July 2027. Rental deductions will still be available, but a net rental loss will generally be quarantined.This means the loss will be able to offset:

income from other residential properties;
relevant capital gains from residential property; or
residential property income earned in a later year.

However, the loss will not generally be deductible against salary, wages, business income or other non-residential income.This is not a complete abolition of negative gearing. It is a restriction on where rental losses from affected properties can be used.New residential dwellings will remain eligible for existing negative-gearing treatment. Further exemptions are also being developed for investments supporting activities such as affordable and social housing, NDIS housing, public housing and qualifying build-to-rent developments.

What has changed since Budget Night?

The central policy has not changed. However, the Government has responded to concerns about grandfathered properties passing between owners because of death or relationship breakdown.The updated rules broadly preserve grandfathering where an interest in an existing property passes to a spouse, former spouse or co-owner in qualifying circumstances arising from death or relationship breakdown.This addresses the widely criticised prospect that a surviving spouse or a person receiving property under a family-law settlement could lose the property’s grandfathered status.Further detail has also been released about what will qualify as a “new residential dwelling”, although some definitions and eligible housing exemptions are still being finalised.For most existing investors, there is no immediate action required. However, anyone who has entered into a contract to acquire an established residential property after Budget night should understand that the treatment of rental losses will change from 1 July 2027.

What is actually changing

Negative gearing lets an investor whose property costs — loan interest, rates, repairs, management fees — exceed the rent deduct that net loss against their other income, such as salary, reducing their overall tax.

From the 2027–28 income year, that ability is wound back for established residential investment properties, but only for properties purchased after 7:30pm on 12 May 2026 (Budget night). For those properties, a net rental loss can no longer be deducted against salary or other non-property income. The loss is not lost: it is quarantined, carried forward, and can be applied against residential property income — other rental income, or the capital gain when you eventually sell a residential property.

Who is protected

Two important groups are unaffected:

• Properties you already held at Budget night. Anything you owned, or had under contract, at 7:30pm on 12 May 2026 is fully grandfathered. You can keep negatively gearing it against your other income in the ordinary way for as long as you hold it.

• New builds. Eligible new-build residential property retains full negative gearing — and, as it happens, the more favourable capital gains treatment when sold. The policy is deliberately steering investment toward new housing supply.

What is not affected at all

The change is confined to residential property. Commercial property, shares and other investments are untouched and continue to be negatively geared as they are today. Superannuation funds, including SMSFs, and widely held trusts are also excluded from the new rules.

Where this leaves you

If you already own an investment property bought before Budget night, you don't need to do anything — your position is unchanged.

If you are thinking about buying an established residential property from here on, the tax calculus has shifted. From 2027–28 you won't be able to use a rental shortfall to reduce the tax on your salary, so cash flow and yield matter more than they used to. A new build keeps the existing treatment; and if you are weighing residential against commercial, commercial property is now relatively more attractive on this measure.

This article covers negative gearing only. The same Act also changes the CGT discount — covered in our separate article on the new 30% minimum tax — along with several other measures we will address in future editions.

There’s no need to rush into buying or selling. Every situation is different, so it’s important to understand how these changes fit within your broader financial and lifestyle goals before making a move. We can help you look at the full picture and make an informed decision with confidence. Simply get in touch for a conversation.

Negative Gearing -What Actually Changes

Talk to our team about your circumstances and gain clarity before making financial decisions that could affect your future.

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