What Is Negative Gearing in Australia? The 2026 Rules

Most of what has been written about negative gearing in Australia is now wrong. Not slightly out of date, wrong, because the rule it describes stops applying to new purchases on 1 July 2027 and the legislation that does that received Royal Assent in June 2026.

If you already own an investment property, very little changes for you. If you are thinking about buying one, almost everything does. The difference between those two positions comes down to a single timestamp.

What Negative Gearing Is

A rental property is negatively geared when the deductible costs of holding it exceed the rent it produces. The difference is a net rental loss.

Under the rules that have applied for decades, that loss came off your other income. Earn $150,000, run a $40,000 rental loss, and you were taxed as though you earned $110,000. The loss was not a benefit in itself, it was a real loss of real money. The tax system simply let you offset it against salary, which softened the cash cost while you waited for the property to appreciate.

That last part matters. Negative gearing was never a strategy on its own. It was a way of financing a bet on capital growth, and the tax offset covered part of the holding cost while the bet ran.

The Rules Changed in 2026

In the Budget delivered on 12 May 2026, the government announced that negative gearing for residential property would be limited to new builds. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, and a second Act followed on 26 August 2026 adding continuity rules so that ordinary life events do not accidentally knock a dwelling out of the exceptions.

This is settled law, not a proposal. The operative points:

• The change starts 1 July 2027. For the 2026-27 income year, which is the one currently running, nothing has changed.
• The cut-off is 7:30pm AEST on 12 May 2026. Properties acquired before that moment are grandfathered, including where a contract had been signed but not yet settled.
• Grandfathering lasts until you sell. It attaches to the property, and it ends on disposal.
• New builds are carved out entirely. A new build keeps negative gearing.

A new residential build means a dwelling constructed on previously vacant land, or one where existing dwellings are demolished and replaced by a greater number of dwellings. Buying a recently completed house from a developer is not automatically a new build for this purpose, and that distinction is worth confirming before you commit rather than after.

Which Category You Are In

Note what the middle column does not say. It does not say the deduction is lost. It says the deduction cannot reach your salary.

A Worked Example

Take an investor on $150,000 buying an established house in bayside Melbourne for $1.5 million, borrowing $1.2 million at 6.5%.

• Rent: $50,000
• Interest: $78,000
• Rates, insurance, management at 7%, and repairs: $15,000
• Total deductible costs: $93,000
• Net rental loss: $43,000

Under the current rules, taxable income falls from $150,000 to $107,000. At the 2026-27 rates that is $15,000 taxed at 37% instead of nothing, and $28,000 at 30% instead of nothing, plus the 2% Medicare levy on the full amount. The tax saved is about $14,800.

Be careful with round numbers here. A $43,000 deduction cannot save $20,000 of tax at this income level, because no part of the income being removed is taxed above 37%. Any article promising a saving in that range is describing arithmetic that does not exist.

So the property costs $43,000 a year out of pocket, and roughly $14,800 comes back. The real annual cost is about $28,200, and the case for the investment rests entirely on capital growth exceeding that.

Now run the same property bought in, say, October 2026 and held into the 2027-28 year. The $43,000 loss no longer touches the salary. It sits against residential property income, of which there is none, so it is carried forward. The tax saving in that year is nil, and the out-of-pocket cost is the full $43,000.

That is a difference of $14,800 a year in cash flow on an identical property. It is not a rounding adjustment, and it is why the purchase date has become the single most consequential fact about a residential investment.

What Quarantining Actually Means

Quarantined is not the same as denied, and the distinction is worth getting right.

A quarantined loss remains deductible. It can be offset against income from residential property, which includes rent from other properties you hold and, importantly, realised capital gains on residential property. Anything left over is carried forward indefinitely to be used against residential property income in later years.

Practical consequences:

• An investor with several properties may be largely unaffected. If one property runs a loss and another runs a profit, the loss finds income to offset within the pool.
• A first-time investor is the most exposed. A single affected property with no other residential income means losses accumulate with no immediate benefit.
• The losses come back on sale. Carried-forward losses can be applied against the capital gain when the property is eventually sold, so the benefit is deferred rather than destroyed. Deferred by a decade, with no compensation for the delay, is still a material cost.
• Bankruptcy extinguishes carried-forward losses. They do not survive it.

The CGT Discount Changed Too

The same legislation reworks capital gains tax, and it applies to far more than property.

From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation combined with a 30% minimum tax rate on net capital gains for assets held more than twelve months. Pre-CGT assets are also brought into the regime.

Indexation lifts your cost base in line with inflation, so in a high-inflation period it can be generous, and in a low-inflation period it is considerably less generous than a flat 50% discount. Whether any given investor is better or worse off depends on the holding period and on what inflation does across it, which is not knowable in advance.

New builds are treated differently again. An investor in an eligible new build can choose between the 50% discount and the new indexation-plus-minimum-tax arrangement when they sell.

If you hold appreciated assets of any kind, not just property, the interaction between the current rules and what replaces them on 1 July 2027 is worth modelling before that date rather than after it.

What You Can and Cannot Deduct

The deductibility rules themselves have not changed, and several of them are still routinely got wrong.

• Interest, not repayments. Only the interest portion of a loan repayment is deductible. Principal is not.
• Capital works at 2.5%. The structure of a building built after 15 September 1987 is written off over 40 years under Division 43. It is a substantial non-cash deduction that plenty of investors never claim because they never commissioned a depreciation schedule.
• Plant and equipment, with a catch. Depreciation on second-hand assets in a residential rental property acquired after 9 May 2017 is not deductible. Buy an established house with an existing dishwasher and oven and you cannot depreciate them. This surprises people every year.
• No travel deductions. Travel to inspect or maintain a residential rental property has not been deductible since 1 July 2017.
• Vacant land is restricted. Holding costs on vacant land have been largely non-deductible since 1 July 2019.
• Initial repairs are capital. Fixing something that was already broken when you bought the property is a capital cost, not a repair, regardless of what the invoice says.

For a fuller treatment of what is claimable, see our guide to investment property tax deductions, and for how the depreciation rules work more generally, how to do depreciation.

Where It Goes Wrong

Treating the tax saving as the return. A negatively geared property loses money. The tax offset reduces the loss, it does not create a gain. The only thing that makes the investment work is capital growth, and if the growth does not come you have simply lost money slowly with a partial subsidy.

Contaminating the loan. Interest is deductible based on what the borrowed money was used for. Redraw from an investment loan to pay for a holiday and that portion of the interest stops being deductible, permanently and awkwardly. Mixed-purpose loans are one of the most common and most expensive errors in this area.

Assuming pre-Budget treatment on a post-Budget purchase. The grandfathering test is the acquisition date, not the settlement date, not the date you started looking. Anyone who bought after 7:30pm on 12 May 2026 on the assumption that the old rules would apply has a cash flow problem arriving on 1 July 2027.

Ignoring the interest rate on a thin margin. The worked example above runs at 6.5%. A one percentage point rise on a $1.2 million loan adds $12,000 to the annual loss, and for an affected property that $12,000 now produces no immediate tax relief at all.

Frequently Asked Questions

I bought my investment property in 2019. What changes for me?

Nothing, for as long as you hold it. It is grandfathered and the losses continue to offset your other income. If you sell and buy a different established property, the replacement is not grandfathered.

Is negative gearing abolished?

No. It continues unchanged for grandfathered properties and for new builds. For established properties acquired after the Budget cut-off, it is restricted from 1 July 2027 so that losses offset residential property income rather than salary.

Does this affect commercial property or shares?

The negative gearing restriction applies to residential property. The CGT changes are much broader and apply to CGT assets generally, including shares, held by individuals, trusts and partnerships.

What counts as a new build?

Broadly, a dwelling constructed on previously vacant land, or built where existing dwellings were demolished and replaced by a greater number of dwellings. The detail matters and it is worth confirming eligibility for a specific property before exchanging contracts.

Can I still claim the loss if I have no other property income?

For an affected property, the loss is carried forward rather than claimed in that year. It can be used against residential property income in later years, including against the capital gain when you sell.

Should I buy before 1 July 2027 to get in under the old rules?

The cut-off was 12 May 2026, not 1 July 2027. Buying an established property now does not obtain grandfathering. The only thing 1 July 2027 changes is when the restriction starts applying to properties already caught by it.

Does this apply to properties held in a trust or company?

The rules apply to individuals, trusts and partnerships. Companies have always had different treatment and never had access to the CGT discount. Where a property sits inside a structure, the interaction is worth specific advice rather than a general answer.

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Negative gearing has gone from a single rule that applied to everyone to three different rules depending on when and what you bought. For anyone holding property already, the position is largely unchanged. For anyone buying, the arithmetic that justified these investments for thirty years no longer runs the same way, and it is worth doing the numbers properly before committing rather than discovering the difference in a tax return two years from now.

Trew North Accounting works with property investors across bayside Melbourne on structure, deductions and the timing of purchases and sales. See our personal tax and finance service, our guide to property investment using superannuation, or get in touch.

This article is general information, not advice for your circumstances, and it does not account for your objectives or financial position. Rules and thresholds change. Check current requirements with the ATO or with us before you act.