Negative Gearing in Australia: How It Works and the 2026 Reform That Changes It
Llandora·Updated 2026-10-14
⚠️ Disclaimer: For general information only — not tax, financial, legal, or medical advice. Figures may be outdated or incorrect; tax rules change frequently. Verify important decisions with the CRA/IRS or a qualified professional (for health topics, a licensed healthcare provider). You use this information at your own risk.
The short answer
Negative gearing is Australia's most argued-about tax concept: the practice of deducting investment losses against your salary to pay less tax. For decades it applied broadly to rental property. Then the 2026–27 federal budget announced the biggest change in a generation: from 1 July 2027, negative gearing on residential property will be limited to new builds, with losses on established properties "quarantined" to property income. Here is how the mechanics work, what the reform changes, and who is affected.
How negative gearing works
"Gearing" means borrowing to invest. An investment is negatively geared when the costs of holding it exceed the income it produces. Australia's tax system generally taxes net income, so a net investment loss can be deducted against other income — typically salary and wages.
That $8,000 comes off the investor's taxable salary. At a 37% marginal rate, the tax saving is $2,960 — softening the out-of-pocket cost of holding the property.
Deductible expenses for a rental property include mortgage interest (not principal repayments), property management fees, council rates, water and sewerage charges, insurance, repairs and maintenance, depreciation on plant and equipment, depreciation on the building itself (capital works), strata levies, and advertising for tenants. The property must be rented or genuinely available for rent.
If the loss exceeds your other income, it is carried forward to future years.
The 2026 reform: what changes from 1 July 2027
Under the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, announced on budget night (7:30pm AEST, 12 May 2026):
Established residential properties acquired after budget night: from 1 July 2027, net rental losses can no longer be deducted against salary or other non-property income. Losses are quarantined — deductible only against residential rental income and residential capital gains, and carried forward to future years.
New builds: fully exempt from the change. Investors in qualifying new dwellings keep full negative gearing against all income.
Grandfathering: properties owned or under contract before 7:30pm on 12 May 2026 are exempt — negative gearing continues exactly as today for as long as the property is held.
CGT reform alongside: the reform package also touches the capital gains tax discount; new builds get a choice of the 50% discount or indexation at sale.
In short: for the 2026–27 tax year, the old rules still apply to everyone. From 2027–28, the property market splits into three lanes — grandfathered, new build, and quarantined established.
The capital gains connection
Negative gearing is usually discussed together with the CGT discount: investment property held for more than 12 months gets 50% of the capital gain excluded from taxable income on sale. The classic negatively-geared strategy was to accept annual after-tax-subsidised losses while waiting for capital growth taxed at half rates. The reform deliberately targets this combination for established housing.
The policy debate
Supporters argue negative gearing encourages private investment in rental housing, increasing supply, and that most landlords are ordinary taxpayers with one property, not moguls. Critics argue it inflates prices for established homes, gives the biggest benefits to high-income earners (whose marginal rate makes each dollar of loss worth more), and tilts the market against first-home buyers. The 2026 reform attempts a middle path: preserve the incentive where it creates new housing supply, remove it where it merely bids up existing homes.
Frequently asked questions
Does negative gearing mean I get money back from the government?
No. You only reduce tax on income you actually earned. A $8,000 loss at a 37% marginal rate saves $2,960 in tax — you are still $5,040 out of pocket. It softens losses; it never creates profit.
I bought an investment property in 2024. Am I affected?
No. Properties held before 7:30pm AEST on 12 May 2026 are grandfathered, and the old rules continue for as long as you hold them.
What counts as a "new build" under the reform?
The legislation defines qualifying new dwellings — check the current ATO guidance, as definitions and documentation requirements are detailed.
Can I still negatively gear shares or commercial property?
The reform targets residential property. Negative gearing as a general principle — deducting investment expenses against other income — continues to apply to other asset classes.
Do I need other income for negative gearing to help?
Yes. The benefit only materialises if you have taxable income to offset. Excess losses are carried forward.
Sources
Parliament of Australia, Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 — bills digest: https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd2526/26bd067
Commonwealth Bank, Get up to speed on negative gearing (2026 budget explainer): https://www.commbank.com.au/articles/newsroom/2026/05/explainer-get-up-to-speed-on-negative-gearing.html
Australian Government Budget, Negative gearing and capital gains tax reform factsheet: https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf
This article is general information about Australian tax settings, not tax or investment advice. The 2026 reform is legislation in progress — confirm the final enacted rules with the ATO or a registered tax agent before making investment decisions.
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