Negative Gearing Changes: What’s Happening (And Why It Might Not Be Too Bad)

photo credit Josie Elias / shutterstock.com

When a government starts talking about “tax reform”, people either switch off or become openly hostile. But this might be one of those moments where it actually pays to lean in for a minute, save judgement for a moment and take a closer look.

The recent proposed changes to negative gearing are actually worth understanding—because once you strip away the noise, they’re trying to reshape how Australians invest in property… and who gets a fair shot at owning a home.

So let’s walk through it, plain and simple.

First things first: what is negative gearing in simple terms

Negative gearing simply means this: Your investment property is costing you more each year than it earns in rent, meaning it is running at a loss, and you can claim that loss against other personal income - your salary and wages.

For example:

• Rent comes in: $25,000

• Expenses go out: $35,000

• You’re $10,000 “behind”

  
  

Right now, the tax system lets you take that $10,000 loss and reduce your taxable income. So you get a reduction in tax at your highest marginal rate. For example: If your gross income is somewhere between $45,001 and $135,000, your marginal rate for every dollar earned over $45,001 is 30%. On your $10,000 loss, you'd get $3,000 back in your tax.

So… what is the government proposing to change?

In the 2026 Federal Budget, the government announced a pretty significant shift to take effect from 1 July 2027. Here’s the essence of it:

1. Negative gearing will be limited to new builds

Going forward, the full tax benefit of negative gearing will apply to newly built properties only. [ato.gov.au]

If you buy:

• ✅ A new property → you can still deduct losses against your salaried income like the example above

• ❌ An existing property → your ability to offset losses becomes more restricted

  
  

2. Existing investments are largely protected

If you already own an investment property, nothing changes for you. This is called “grandfathering,” and it’s important—it means people aren’t disadvantaged because of decisons they took under the previous policy and be forced to suddenly change plans mid-stream. [ato.gov.au]

You can still use the losses—but not to reduce your PAYG income.

For newer purchases of established homes, losses may only be offset against property-related income, not your salary. [ato.gov.au] In simple terms:

You can use the losses against property investment profits.

In all the yelling and the screaming, and the cutesie instagram posts, this aspect of the new changes has been largely overlooked. Essentially, losses on an investment property are carried forward and claimed against income when this, or other investment properties you own, show a profit. This loss can also be claimed any future capital gains!

So… what does this mean for you?

Here’s the real takeaway. This isn’t about whether negative gearing is “good” or “bad.” It’s about how the rules are evolving—and whether your strategy still works under those rules.

A few practical reflections:

• If you’re an existing investor → you’re largely unaffected

• If you’re buying next → the type of property matters much more

• If your strategy relied heavily on tax offsets → it might need a rethink (see previous reflection)

• If you’re open to new builds or diversification → there's opportunity

Final thought: a shift, not a shutdown

Negative gearing isn’t disappearing. It’s being refocused. And in many ways, the change reflects something broader happening in Australia:

The move from property as a tax-driven strategy to property as a fundamentals-driven investment.

Prior to these changes there were a lot of smart people making informed decisions about property as a vehicle for investment. Residential property still offers all the fundamentals investors look for, and after these changes come into effect, there will still be lots of those same people looking to invest.

Whether you agree with the changes or not, they're worth understanding, because the investors who adapt early will be the ones who benefit most in the long run.

We'd be happy to discuss these changes in more detail and help you understand how they might impact your invividual circumstnaces.