Negative gearing has been one of the most popular tax strategies used by Australian property investors. For many years, investors have been able to offset rental property losses against other taxable income, such as salary and wages. However, the Australian Government has announced major changes to negative gearing and capital gains tax rules that are expected to affect future residential property investment decisions.
From 1 July 2027, negative gearing for residential investment properties is expected to be limited mainly to new builds, while established properties purchased after the announcement date will be treated differently. These reforms were announced as part of the 2026–27 Federal Budget and are designed to direct tax support toward new housing supply.
Negative gearing occurs when the deductible expenses of an investment property are higher than the rental income received from that property.
For example, if your rental income is $28,000 for the year, but your deductible expenses are $40,000, the property has made a rental loss of $12,000.
Under the current rules, that rental loss may generally be used to reduce your other taxable income, such as salary or wages. This can reduce the amount of tax you pay, although it is important to remember that the investor is still making a cash loss.
Common rental property expenses may include loan interest, council rates, water rates, insurance, property management fees, repairs, maintenance, strata fees and other eligible costs. The ATO also expects investors to correctly apportion expenses where the property, loan, or expense has a private component
From 1 July 2027, negative gearing for residential property investments will be limited to new builds. This means investors who purchase eligible new residential properties will still be able to claim rental losses against other income, including salary and wages.
For established residential properties purchased after the announcement time, rental losses will no longer be able to reduce non-property income such as wages from 1 July 2027. Instead, those losses may be deducted against other residential property income, including residential property capital gains, or carried forward to future years.
The key announcement time is 7:30pm AEST on 12 May 2026.
Properties held before this time, including properties where a contract had already been entered into but not yet settled, are expected to be exempt from the negative gearing changes. This means existing investors should generally be able to continue negatively gearing those properties under the current rules until the property is sold.
If you already owned the property, or had entered into a contract before the announcement time, you should generally be able to continue using the existing negative gearing rules.
This is important for existing investors because it means the proposed changes are not expected to remove negative gearing benefits from properties already held at the announcement time.
Investors who purchase an established residential property after the announcement time may still be able to negatively gear the property up to 30 June 2027.
However, from 1 July 2027, rental losses from that established property will generally no longer be able to reduce salary, wages, or other non-residential-property income. Instead, excess losses may need to be carried forward or used against future residential property income.
Investors who purchase established residential property from 1 July 2027 will generally not be able to negatively gear that property against salary and wages.
This may significantly change the after-tax cash flow of future investment property purchases, especially for high-income earners who previously relied on rental losses to reduce taxable income.
New builds are expected to receive favourable treatment. Investors who buy eligible new residential properties should still be able to access negative gearing before and after 1 July 2027.
The Budget material states that new builds must genuinely add to housing supply. Examples include dwellings constructed on vacant land or developments where existing properties are demolished and replaced with a greater number of dwellings. Substantial renovations or knock-down rebuilds that do not increase housing supply are not expected to qualify.
A new build is expected to include residential property that genuinely adds to the housing supply. This may include:
A newly constructed dwelling on vacant land
An off-the-plan apartment
A duplex or townhouse development that increases the number of dwellings
A development where an existing property is demolished and replaced with more dwellings
However, not every recently renovated property will qualify. A substantial renovation, extension, or knock-down rebuild may not qualify if it does not increase the number of dwellings.
Investors should be careful before assuming that a property is a new build for tax purposes. Contract documents, builder information, occupancy history and settlement details may become important
The Government has also announced changes to capital gains tax from 1 July 2027.
The current 50% CGT discount for individuals, trusts and partnerships is expected to be replaced with a system based on cost base indexation, together with a minimum 30% tax rate on capital gains. These CGT changes are expected to apply only to gains that accrue from 1 July 2027, when those gains are eventually realised.
For assets owned before 1 July 2027 and sold after that date, the gain may need to be split between the pre-1 July 2027 period and the post-1 July 2027 period. This makes record keeping and valuation evidence more important.
These changes may affect future buying, selling and refinancing decisions. Investors should review their position before making any major property decision.
Key matters to consider include:
Whether the property was held before the announcement time
Whether a future purchase is an established property or a genuine new build
Whether future rental losses can still be offset against salary or wages
Whether losses may need to be carried forward
The effect of higher holding costs if tax refunds are reduced
The importance of keeping contracts, settlement records and valuation evidence
The possible impact of CGT changes after 1 July 2027
A property that appears affordable under the current negative gearing rules may produce a different after-tax result under the new rules.
Negative gearing has often helped investors manage the shortfall between rental income and property expenses. If future losses cannot be offset against salary or wages, investors may need to fund a larger after-tax cash shortfall from their own pocket.
This is particularly important for investors purchasing established residential property after the announcement date. Even if the loss can be carried forward, the immediate tax benefit may be reduced or delayed.
Before purchasing an investment property, investors should consider interest rates, vacancy periods, repairs, land tax, insurance, strata costs and the potential loss of immediate tax offsets.
From 1 July 2027, negative gearing for residential investment properties will generally be limited to new builds. This means investors who purchase eligible new residential properties may continue to deduct rental losses against other income. However, investors who purchase established residential properties after the key announcement time will be subject to different rules. Treasury states that the change is designed to direct tax support toward new housing supply.
The new rules are scheduled to apply from 1 July 2027. The key announcement time is 7:30pm AEST on 12 May 2026. Properties held before that time are expected to be exempt from the changes.
Properties already held before 7:30pm AEST on 12 May 2026 are expected to be grandfathered. This means existing arrangements should generally continue to apply for those properties. The Treasury Minister’s statement also refers to grandfathering provisions for people who currently own an investment property.
If you buy an established residential investment property after 7:30pm AEST on 12 May 2026, future rental losses will generally not be deductible against non-residential income, such as salary or wages, from 1 July 2027. Instead, losses may be deducted against other residential property income, including residential property capital gains, or carried forward to future years.
For eligible new builds, investors should still be able to deduct rental losses against other income, including salary and wages. For established residential properties purchased after the announcement time, rental losses will generally not be deductible against salary or wages from 1 July 2027.
A new build generally refers to residential property that adds to housing supply. This may include a newly constructed dwelling, an off-the-plan apartment, or a development that increases the number of available dwellings. Investors should not automatically assume that a renovated or rebuilt property qualifies as a new build. Proper tax advice should be obtained before purchasing.
For established residential properties affected by the new rules, rental losses may be carried forward to future income years. They may also be used against other residential property income, including capital gains from residential property. This means the tax benefit may be delayed rather than available immediately against salary or wages.
The announced negative gearing changes are focused on residential property. The Treasury guidance specifically refers to negative gearing of residential property being limited to new builds from 1 July 2027. Commercial property investors should obtain separate advice, as different rules and tax treatment may apply.
Yes. From 1 July 2027, the Government will replace the current 50% capital gains tax discount with a discount based on inflation and introduce a minimum 30% tax rate on capital gains. Treasury states that the new CGT arrangements will only apply to capital gains that accrue from 1 July 2027 when those gains are realised.
This depends on your cash flow, tax position, investment goals, borrowing capacity and long-term strategy. New builds may continue to receive more favourable negative gearing treatment, while established properties purchased after the announcement time may have reduced immediate tax benefits from 1 July 2027. Before buying, selling, refinancing or restructuring an investment property, you should seek professional tax advice to understand how the changes may affect your situation.
CPA | CA | Registered Tax Agent
15+ Years Industry Experience
Imran Fazil is the Co-Founder and CEO of DIA Taxation, an Australian-owned boutique accounting firm providing tax, accounting, bookkeeping, and advisory services. He is known for combining strong technical knowledge with practical commercial insight, helping individuals and businesses navigate tax matters with clarity and confidence.
With over 15 years of experience in taxation and advisory services, Imran specialises in strategic tax planning, GST and BAS compliance, and trust and company taxation. His experience across construction, property, professional services, and logistics, together with a Big 4 background, supports a strong, commercially focused, and compliance-driven approach.
