Negative Gearing Changes: What Property Investors Need to Know
Negative gearing is a tax strategy where the cost of owning an investment property is higher than the rental income it earns. These costs may include loan interest, repairs, council rates, insurance, and property management fees. The resulting loss may reduce taxable income, depending
What is negatve gearing?
Negative gearing occurs when the costs of owning an investment property, including interest, management fees, maintenance, rates, and depreciation, exceed the rental income it generates. Under the rules that applied before the 2026–27 Budget, that net loss could be deducted against any income, including salary or wages, reducing your overall tax bill. According to the Australian Taxation Office (ATO), over 2 million Australians claimed rental deductions from investment properties in recent income years. It is one of the most common tax strategies used by individual investors.
What did the 2026–27 Federal Budget change about negative gearing?
The 2026–27 Federal Budget, handed down on 12 May 2026, introduced a quarantining rule for losses from newly acquired established residential properties. For properties acquired after 7:30pm AEST on 12 May 2026, losses will only be deductible against rental income or capital gains from residential properties, not against salary, wages, or other income, effective from 1 July 2027. Newly constructed properties are exempt from this change and retain full negative gearing deductions under the existing rules.
Are my existing investment properties affected by the negative gearing changes?
No. Existing investment properties are fully grandfathered. If you already own a negatively geared investment property purchased before 7:30pm AEST on 12 May 2026, your ability to offset those losses against your other income continues unchanged for as long as you hold that property. The Budget measure applies only to new acquisitions of established residential properties made after the 2026–27 Budget announcement.
What if I signed a contract before 7:30pm on 12 May 2026 but haven't yet settled?
Contracts entered into before 7:30pm AEST on 12 May 2026 are covered by the grandfathering provisions, even if settlement has not yet occurred. The new rules will not affect your acquisition. If you have any doubt about your contract date, reach out to your accountant prior to settlement.
Do new builds get the same treatment as established properties?
No. This is one of the most important distinctions in the 2026–27 Budget measure. Newly constructed properties are fully exempt from the quarantining rules and retain unrestricted negative gearing deductions regardless of when they are acquired. This creates a meaningful after-tax difference between buying a new build and buying an established property, which should be modelled carefully before any purchase decision.
| Property Type | Acquired After 12 May 2026 | Negative Gearing Treatment |
|---|---|---|
| Established residential | Yes | Losses quarantined to property income/CGT only from 1 July 2027 |
| Newly constructed | Yes | Full deductions retained. No change. |
| Any property | No (before 7:30pm 12 May 2026) | Fully grandfathered. No change. |
What does 'quarantining' losses mean?
Your losses will only be able to offset taxable income made on other residential properties from 1 July 2027. This includes your rental profit or a capital gain on sale. Your negative gearing losses cannot be used to offset your salary, wages or any other income.
Negative gearing losses will be quarantined within your property portfolio until you either make a rental profit or sell your property for a capital gain.
Example: Assume you’re an investor on a 47% marginal tax rate that makes $15,000 in annual losses on your investment property. By losing access to the salary offset, you would pay an additional $7,050 per year in taxes. (Remember, you still pay tax on negative gearing losses, it’s just deducted from your other income.). By losing the salary offset, you will still pay tax on your overall income the loss can no longer reduce your income or other non rental income, but you can carry forward the loss to claim against other rental income or capital gains.
$15,000 loss x 47% tax rate = $7,050
That is the difference in your annual holding costs between established and new construction properties. That difference could mean the difference between buying or not.
How does this affect high-income investors?
High income earners who have been negatively gearing properties to offset their wages stand to lose the most. Losing the ability to deduct investment losses against your salary income is significantly more painful for high-income earners in the highest marginal tax brackets, who have been using rental losses to reduce taxable salary income.
If you have been using negatively geared investment properties to offset wages and reduce your overall taxable income, you need to rethink your strategy before buying another established property.
How do these changes interact with the CGT changes announced in the same Budget?
The negative gearing quarantining rules interact directly with the capital gains tax changes also announced in the 2026–27 Budget. Together, the two measures materially affect the after-tax economics of acquiring a new established investment property, both the annual holding cost and the eventual sale proceeds. The combined effect on your after-tax return should be modelled in full before you proceed with any purchase.
I am considering buying another investment property. What should I do?
Contact your accountant or financial adviser before you proceed. The 2026–27 Budget changes affect both your ongoing cash flow and your future capital gains position in ways that depend on your income level, existing portfolio, and the type of property you are considering. Acctivate Business Accountants can model the after-tax cost under the new rules and compare established properties against new builds for your specific situation.
When will the full technical details be confirmed?
The precise definition of qualifying new builds and other technical details are subject to the release of draft legislation, which had not been published as of 13 May 2026. We will update this FAQ as draft legislation is released and will flag any changes that affect your position.
This content is general in nature and does not constitute personal financial or tax advice. It reflects 2026–27 Federal Budget announcements as of 13 May 2026. Full technical details, including the precise definition of qualifying new builds, are subject to the release of draft legislation. Consult a registered tax agent or financial adviser for advice specific to your circumstances.
Act before you buy.
If you are considering purchasing another investment property, the rules have changed in ways that affect both your ongoing cash flow and your future capital gains position. Please contact us before you proceed.
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