Proposed Negative Gearing Changes – What You Need to Know
The Government has announced proposed changes to negative gearing for residential investment properties, scheduled to commence from 1 July 2027. The changes are aimed at redirecting tax benefits toward new housing supply, while protecting existing property investors through grandfathering rules.
Changes at glance: from 1 July 2027
Existing investment properties held at the time of the budget announcement that you already own are protected
Negative gearing will continue for new residential builds
Negative gearing will be limited for established properties (not new builds) bought after the budget announcement. Losses won’t disappear – they’ll be carried forward and used later
Negative gearing occurs when a rental property’s expenses exceed the rent it earns, creating a loss. These expenses commonly include loan interest, rates, insurance, maintenance and management fees. Under current rules, these losses can usually be offset against other income, but under the proposed changes this will generally only continue for grandfathered properties and new builds.
What Is Changing from 1 July 2027?
Established Residential Properties (Bought After 1 July 2027)
If you purchase an existing (established) residential property on or after 1 July 2027:
Rental losses cannot be offset against salary or other income
Losses can only be used to offset:
Rental income from residential properties, or
Capital gains from residential properties
Any unused losses are carried forward and can be applied in future years
In practical terms, this means you don’t lose the deduction — you just have to wait until you have enough rental income or a capital gain from residential property to use it. Compared to the current negative gearing rules, the tax benefits of borrowing to invest in established residential property will be reduced, because rental losses will no longer be able to offset your other income.
Established Residential Properties (Bought After budget announcement and before 1 July 2027)
Properties purchased between announcement and 30 June 2027 may be negatively geared during this period up to 30 June 2027, but not from 1 July 2027.
Important Protection for Existing Property Owners
Residential investment properties owned at Budget time
(7:30 pm AEST on 12 May 2026) are fully grandfathered.
This means:
You can continue to negatively gear those properties
Rental losses can still be offset against salary, business or other income
This treatment continues until the property is sold
This applies on a property‑by‑property basis, not per investor.
New Residential Properties – No Change to Negative Gearing
Negative gearing will continue to apply to eligible new residential properties, reflecting the Government’s focus on increasing housing supply.
What qualifies as a “new residential property”?
A new residential property is expected to mean housing that genuinely adds to supply, such as:
Homes built on vacant land, or
Developments where an existing property is demolished and replaced with a greater number of dwellings
Properties that do not increase housing supply are not expected to qualify, such as:
Knock‑down rebuilds of a single home, or
Substantial renovations that do not add dwellings.
In practice:
Buying an off‑the‑plan apartment or a newly constructed townhouse is more likely to qualify than buying an existing house.
How the changes to Negative Gearing will apply*
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Michael owns an investment property that he purchased before 12 May 2026. The property is negatively geared, meaning his rental expenses exceed the rent he receives.
Under the proposed changes, Michael’s property is grandfathered. This means:
He can continue to offset rental losses against his other income (such as salary)
The negative gearing rules for this property remain unchanged
This treatment continues until the property is sold
In practice:
Michael is not impacted by the new negative gearing restrictions for this property.
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Yoonseo earns a salary of $100,000 and buys an existing residential investment property after the new rules commence. She purchases the property for $519,000 (including stamp duty), rents it out, and sells it ten years later for $814,447.
In the first five years, the property makes net rental losses, which she cannot use to reduce her salary income
These losses, totalling $22,879, are carried forward
Over the next five years, the property becomes positively geared, and Yoonseo uses most of the carried‑forward losses to reduce the taxable rental income to zero
When she sells the property, she applies the remaining carried‑forward losses to reduce her taxable capital gain from $150,083 to $145,284
Overall, Yoonseo pays $186 more in nominal tax over the life of the investment compared to the current rules.
In practice:
Yoonseo does not lose her deductions — but she has to wait longer to use them, reducing the upfront tax benefit of negative gearing.
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Had Yoonseo purchased an eligible new residential property instead of an established one:
She would have been able to negatively gear the property as she does now
Rental losses could have been offset against her salary
The existing CGT discount would still apply
In practice:
The new build exemption preserves the tax outcomes that currently apply, highlighting the Government’s intent to encourage investment in new housing supply.
*Examples are based on the Government budget factsheets.
What You Should Be Thinking About Now
From a practical planning perspective, you may want to consider:
Whether future property investments are likely to be new builds or established dwellings
The cash‑flow impact of rental losses that may need to be carried forward
The timing of property purchases and sales
How these changes interact with the proposed CGT reforms
Long‑term strategy rather than short‑term deductions
As your trusted advisors, we will work with you to optimise your position.
Further important information
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At this stage:
There is no cap on the number of properties you can own
The key issue is whether the property qualifies, not how many you hold
However, it is still unclear whether:
Rental losses will be tied to a specific property, or
Can be offset against income from other residential properties
This detail will be important once legislation is released.
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The changes apply only to residential investment properties.
Other investments which are not affected by these changes include:
Shares
Commercial property
Business assets
Residential property classification is expected to focus on the physical characteristics of the property, not how it is actually used.
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Start date: 1 July 2027
First affected income year: 2027–28
Transitional protections apply for:
Properties owned at Budget time
Eligible new residential properties
This information is general in nature and based on Budget announcements and factsheets. Final outcomes will depend on legislation yet to be passed.