The Short Version
From 1 July 2027, the way negative gearing works on investment property is changing. In broad terms, the ability to deduct a rental loss against your wage or salary income is being restricted for newly-acquired established dwellings.
Two things soften the change. Existing investments are grandfathered — properties you already own keep their current treatment. And new builds are carved out — negative gearing continues for newly-built dwellings, to keep supporting housing supply.
If you own, or are planning to buy, a rental property, it is worth understanding the shape of the change now. You can model the financing side with our mortgage repayment calculator, and the gain side of any eventual sale with our CGT reform calculator, as the two reforms interact.
First, What Negative Gearing Actually Is
Negative gearing is not a special scheme — it is a description of a situation. A property is "negatively geared" when the costs of holding it (loan interest, rates, insurance, maintenance, agent fees, depreciation) are more than the rent it earns, so it runs at a loss.
Under the current rules, that net rental loss can generally be deducted against your other income, including your wage or salary, reducing your overall tax bill for the year. The investor wears a cash loss now in the expectation of a capital gain later.
The reform targets that offset against wage and salary income — not the ownership of investment property itself.
The Background Story
Negative gearing has been politically contested for decades. It was briefly quarantined in the mid-1980s and then reinstated. Labor took a policy of restricting negative gearing to new housing to the 2016 and 2019 elections and did not win office to implement it, so the current broad treatment remained in place.
The change was ultimately legislated as part of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 — the same package that restricted new SMSF residential borrowing and reshaped the capital gains tax discount. The measure was announced on Budget night, 7:30 pm AEST 12 May 2026, which acts as the announcement cut-off, with the changes commencing on 1 July 2027.
The rationale generally cited is to redirect the tax concession toward new housing supply and away from bidding up the price of existing homes. Because the detailed rules are still being finalised in guidance, treat the description below as the general shape of the reform. Always confirm the current, enacted position with the ATO before acting — links are at the end of this article.
Key Dates
| Milestone | Date |
|---|---|
| Announcement (cut-off) | 7:30 pm AEST 12 May 2026 |
| Reform commences | 1 July 2027 |
| Property owned before commencement | Grandfathered |
| Established dwelling bought after | New quarantining rules |
The cut-off matters: it is broadly the date used to separate arrangements that are protected from those caught by the new rules.
What Is Actually Changing
The mechanism is a shift from offsetting rental losses to quarantining them.
Under the existing model, a net rental loss on an eligible property can be deducted against your salary, wages and other income in the same year, lowering the tax you pay across the board.
Under the proposed post-reform model, for a newly-acquired established dwelling:
- A net rental loss can no longer be deducted against wage or salary income.
- The loss is instead quarantined — carried forward and offset against future rental (or other investment) income, or against the capital gain when you eventually sell.
- The deduction is not lost; its timing changes. You get the benefit later rather than each year.
The two treatments side by side
| Feature | Existing treatment | Post-reform (new established buys) |
|---|---|---|
| Loss offset against | Salary, wages and other income | Future investment income / the CGT gain |
| Timing of the benefit | Each year, as the loss arises | Deferred until income or sale |
| Cash-flow effect | Reduces tax now | No annual wage offset |
| Applies to | (Under old rules) most investors | Newly-acquired established dwellings |
Existing Investments Are Grandfathered
This is the reassurance most current investors are looking for.
If you already own an investment property, its treatment does not change. The reform is not retrospective, so a property held before commencement continues under the current negative gearing rules. There is no requirement to sell, restructure, or refinance to preserve it.
As with any grandfathering, the finer points — what happens if you refinance, substantially renovate, or change how the property is held — turn on the enacted detail and your own facts. Those are questions for your accountant rather than something to read off a summary.
The New Build Carve-Out
Consistent with the housing-supply intent, newly-built dwellings are carved out. Negative gearing on an eligible new build is preserved, so the concession keeps flowing to construction that adds to supply rather than to purchases of existing stock.
Eligibility is specific, and confirming that a property qualifies as an eligible new build is a question for the enacted rules and your adviser — not something you should assume.
How It Interacts With the CGT Reform
These two changes came in the same Act and are designed to work together. If your negatively-geared losses are quarantined and carried forward to the eventual sale, they land in the capital gains calculation — which is itself changing from 1 July 2027, from a flat 50% discount to an indexation method with a 30% minimum tax.
In other words, the annual tax benefit and the sale-time tax outcome are now more tightly linked than before. Modelling one without the other can be misleading. Our CGT reform calculator can help you see the gain side; the interaction between the two is a conversation for your accountant.
A Few Practical Pointers (Not Advice)
None of the below is tax or financial advice, and the right answer depends entirely on your own circumstances. These are simply the questions the change tends to raise, to take to your accountant or registered tax agent:
- Know which side of the date you are on. Whether a property is grandfathered or caught depends on when you commit. Your adviser can confirm how the cut-off applies to your situation.
- Re-check your cash-flow assumptions. If you were relying on an annual wage offset to make a new established purchase work, the numbers change under quarantining. Model it before you commit.
- Keep loss records carefully. Quarantined losses only help you later if they are documented and carried forward correctly year to year.
- Weigh new vs established properly. The carve-out changes the relative appeal of new builds, but eligibility and the wider merits are a question for advice, not a rule of thumb.
- Think about the sale, not just the year. Because carried-forward losses meet the new CGT rules at sale, plan the two together rather than in isolation.
For the financing side of any of this — a purchase, or refinancing around a change of strategy — our mortgage repayment calculator can help, and that is the part we can assist with directly.
Common Misunderstandings
"Negative gearing has been abolished." No. It continues for grandfathered properties and for eligible new builds. What changes is the annual wage offset on newly-acquired established dwellings.
"I have to sell my existing investment property." No. Existing investments are grandfathered and their treatment does not change.
"I lose the deduction entirely." Not under the model described here. The loss is quarantined and carried forward, so the timing of the benefit changes rather than the benefit disappearing.
"This applies to my family home." Negative gearing applies to income-producing investment property, not your own home.
Final Thoughts
The reform narrows the annual wage-offset benefit of negative gearing for newly-acquired established dwellings from 1 July 2027, while grandfathering existing investments and carving out new builds. Whether it changes the case for a given purchase depends on your cash flow, your marginal rate, and how the deferred losses eventually meet the new CGT rules.
Where we can help is the finance side. If a lending question comes out of a conversation with your accountant — buying, refinancing, or restructuring around these changes — contact us and we can work alongside your tax adviser. There is no obligation.
Official Sources
This area is technical and the detail is still being finalised in guidance. Please rely on the primary sources rather than this summary:
- ATO — Residential rental properties
- ATO — Capital gains tax
- ATO — home page
- Australian Government Budget
This article is general information only and was prepared on 4 August 2026. It does not take into account your objectives, financial situation or needs, and it is not financial, credit, taxation or legal advice. Nothing in this article is a recommendation to acquire, dispose of or continue to hold any property or financial product.
The reform described here is drawn from announced measures and published commentary and is accurate to the best of our knowledge at the date of writing; the detailed rules, thresholds and commencement arrangements may change after publication. You should confirm the current, enacted position with the ATO and obtain advice from a registered tax agent, accountant or licensed adviser before making any decision about buying, selling or holding an investment property.
Levio Pty Ltd (ACN 618 540 775) is a Credit Representative (Credit Representative Number 563108). We provide credit assistance only. We are not licensed to provide financial product or taxation advice, and nothing in this article should be taken as such advice. Any credit assistance we provide is subject to a full assessment of your circumstances, and lending is subject to lender approval, terms, conditions, fees and charges.
