Negative gearing changes in Australia: what property investors need to know

The big change in plain English

A negatively geared property makes a financial loss when its eligible expenses are greater than the rental income it earns. Under the traditional rules, an investor may be able to deduct that loss against other taxable income, such as their salary.

From 1 July 2027, the new rules generally restrict that treatment for established residential properties bought after 7:30 pm AEST on 12 May 2026.

Investors may still claim eligible property expenses under the ordinary tax rules. However, the new rules generally quarantine any excess loss instead of allowing it to reduce tax on unrelated income immediately.

1. What is negative gearing?

Negative gearing occurs when an investment property produces less rental income than its eligible ownership and operating costs.

Eligible expenses may include:

• investment loan interest;
• council and water rates;
• landlord insurance;
• property management fees;
• owners corporation or strata fees;
• eligible repairs and maintenance;
• depreciation; and
• capital works deductions.

For example, an investor may receive $35,000 in annual rent but incur $55,000 in eligible property expenses. That creates a residential property loss of $20,000.

Under the traditional rules, an eligible investor may be able to deduct that $20,000 against other taxable income. The deduction does not remove the expense, but it may lower the investor’s income tax liability.

2. When do the new negative-gearing rules begin?

The new treatment begins on 1 July 2027 and applies from the 2027–28 income year.

The critical grandfathering cutoff is:

The new loss-quarantining restrictions generally do not apply to owners who acquired their property interest before that time.

Where a contract governs the purchase, the relevant point will generally be the date the parties signed the contract rather than the later settlement date.

Keep clear records of both the date and time for any contract signed close to the cutoff.

3. Which properties can investors still negatively gear?

The traditional negative-gearing rules will generally continue to cover two important categories of residential property.

Grandfathered ownership interests

An owner who acquired a property interest before 7:30 pm AEST on 12 May 2026 will generally keep the existing negative-gearing treatment.

In practice, eligible rental property losses may continue to reduce unrelated assessable income, subject to the ordinary tax rules.

Grandfathering generally belongs to the existing taxpayer’s ownership interest. It does not permanently attach to the property for every future buyer.

Eligible new residential dwellings

The ordinary loss-quarantining restriction will generally exclude eligible new homes. The aim is to continue supporting property investment that genuinely adds to Australia’s housing supply.

A dwelling’s eligibility may depend on matters such as:

• construction on previously vacant land;
• any previous occupation of the dwelling;
• substantial renovations that effectively created a new dwelling;
• replacement of a demolished property;
• creation of an additional dwelling or legal interest;
• a genuine increase in housing supply; and
• the purchaser’s status as the builder, first purchaser or a later purchaser.

4. How different property types may be treated

5. What happens to losses from affected established properties?

An investor may still claim eligible expenses connected with earning residential rental income. The major change is what happens when those expenses exceed the property’s income.

For an affected established property, an investor cannot ordinarily use the excess loss to reduce tax on:

• salary;
• wages;
• unrelated business income; or
• other non-residential income.

Instead, the new rules generally treat the excess as a quarantined residential property amount.

An investor may generally use a quarantined amount in the following ways:

• offset income from other residential properties;
• offset certain residential property gains;
• apply it through the amended residential capital-gains calculation; or
• carry it forward for use in a later income year.

6. How the changes could affect an investor’s cash flow

Consider an investor with the following position:

• Salary: $150,000 per year
• Rental income: $35,000 per year
• Eligible property expenses: $55,000 per year
• Residential property loss: $20,000 per year
• Assumed marginal tax rate including Medicare: 39%

If traditional negative gearing applies

The indicative immediate tax benefit may be:

The investor still pays the full expenses during the year, but the estimated after-tax cost of the $20,000 property loss may reduce to approximately $12,200.

If the residential loss is quarantined

Because the loss cannot ordinarily reduce tax on salary, the investor may need to fund the entire $20,000 shortfall during the year.

In this example, the investor may need to contribute approximately $7,800 more cash during the year compared with an equivalent grandfathered or eligible new property.

Tax outcomes depend on individual circumstances. Ask a registered tax agent to confirm the figures.

7. Can profit from one property absorb a loss from another?

The new rules broadly examine the residential property income and deductions that the same taxpayer holds.

As a result, positive income from one residential investment may absorb losses from another property before the rules quarantine the remaining excess.

For example:

• Property A produces a $20,000 residential property loss.
• Property B produces $12,000 in positive residential property income.
• The remaining amount potentially quarantined is $8,000.

The final calculation may vary depending on the taxpayer, ownership structure and type of income or gain involved. An accountant should confirm how the ordering rules apply to the investor’s full portfolio.

8. What if you turn your current home into an investment property?

The changes may affect homeowners who purchase an established home after the cutoff, live in it initially and later decide to rent it out.

Previously living in the property does not automatically make the ownership interest grandfathered.

If the homeowner acquired the property after 7:30 pm AEST on 12 May 2026 and it does not qualify as an eligible new dwelling or another exemption, the new rules may quarantine future rental losses from 1 July 2027.

This could be particularly important for borrowers who plan to upgrade their home while retaining their current property as an investment.

9. Does refinancing affect grandfathering?

A standard refinance changes the loan attached to the property. It does not ordinarily change the owner or the date they acquired their property interest.

For that reason, refinancing by itself should not ordinarily remove the grandfathered treatment of an existing property.

Greater care is required where refinancing is combined with:

• adding or removing a spouse from the title;
• changing ownership percentages;
• transferring the property into or out of a trust;
• transferring the property to a company;
• changing beneficial ownership;
• a family-law property settlement;
• a deceased-estate transfer; or
• a trust restructure or resettlement.

These transactions may create a new acquisition of some or all of an ownership interest. Obtain legal and taxation advice before making the change.

10. Loan purpose still matters

The new reforms do not replace the existing rules that determine whether investment loan interest is deductible.

The tax treatment of interest generally follows how the borrower used the money, not simply which property secured the loan.

For example:

• Borrowing against an investment property to purchase a private vehicle will generally create private debt.
• Borrowing against an owner-occupied home to purchase an investment property may create investment-related debt.
• Redrawing investment debt for private spending may create a mixed-purpose loan.
• Refinancing existing investment debt may preserve its character where the original purpose remains unchanged.

Investors should consider separate loan splits for private and investment borrowing. They should also keep clear records showing how they used every borrowed amount.

11. Could the changes affect borrowing capacity?

Lenders may review how they calculate negative-gearing benefits when assessing investment loan applications.

A lender may reduce or remove an estimated negative-gearing benefit when the new rules affect the property.

Possible lending changes may include:

• different servicing treatment for new and established properties;
• requests for evidence of the property’s contract date and time;
• requests for proof that a dwelling qualifies as an eligible new build;
• greater reliance on actual rental income and ownership expenses;
• closer examination of the proposed ownership structure; and
• more conservative treatment of expected tax refunds.

Each lender will decide how to reflect the new legislation in its credit policy and servicing calculator. As a result, one lender may accept a borrowing position that another lender rejects.

12. What property investors should check before buying

Before signing an investment property contract, confirm the following:

1. The date and time the purchase contract will be entered into.
2. Whether the property is established or genuinely qualifies as a new dwelling.
3. Whether the ownership interest will be grandfathered, exempt or subject to loss quarantining.
4. The expected annual rent and a realistic vacancy allowance.
5. The annual loan interest, repayments and property ownership expenses.
6. The property’s full pre-tax cash-flow shortfall.
7. Whether an immediate negative-gearing tax benefit is actually available.
8. The amount of personal cash required each month.
9. How the property affects borrowing capacity for future plans.
10. Whether the proposed ownership structure is appropriate.

13. What could the changes mean for the property market?

The eventual impact on property prices, rents and housing supply remains uncertain. Outcomes will depend on interest rates, credit policy, migration, construction levels, vacancy rates and investor confidence.

However, the changes may contribute to:

• stronger investor interest in qualifying new homes;
• greater focus on rental yield and positive cash flow;
• reduced demand from highly leveraged investors for some established properties;
• longer holding periods for grandfathered investments;
• fewer homeowners retaining a former home as a rental property;
• greater use of lower loan-to-value-ratio strategies; and
• more detailed marketing of new developments around tax eligibility.

Tax treatment should never be the only reason to purchase a property. Location, rental demand, property condition, borrowing structure, ongoing costs and long-term objectives still matter.

14. Frequently asked questions

Has negative gearing been abolished in Australia?

No. The reforms restrict negative gearing rather than abolishing it completely. Traditional treatment generally remains available for grandfathered ownership interests and eligible new residential dwellings.

What is the grandfathering cutoff?

The cutoff is 7:30 pm AEST on 12 May 2026. The new restrictions generally do not apply to an owner who acquired their property interest before that time.

When do the new rules start?

The restrictions apply from 1 July 2027, beginning with the 2027–28 income year.

Can an investor still negatively gear a new property?

Eligible new residential dwellings generally retain traditional negative-gearing treatment. The property must satisfy the relevant eligibility requirements.

Are quarantined residential property losses lost forever?

Not necessarily. Investors may generally carry them forward and apply them against residential property income or certain residential property gains in a later year.

Will refinancing remove grandfathered status?

A straightforward refinance without an ownership change should not ordinarily alter the acquisition date of the ownership interest. Specialist advice is important where the refinance includes a title or ownership restructure.

Will the changes affect borrowing power?

They may. Lenders may reduce or remove negative-gearing tax benefits from their servicing calculations for affected established properties.

The bottom line

Negative gearing has not disappeared, but residential property will broadly fall into three categories from 1 July 2027.

1. Ownership interests acquired before 7:30 pm AEST on 12 May 2026: traditional negative-gearing treatment generally continues.
2. Eligible new residential dwellings: traditional negative gearing generally remains available.
3. Established residential properties acquired after the cutoff: excess residential losses will generally be quarantined and cannot ordinarily reduce salary, wages or unrelated business income.

Anyone buying an established property after the cutoff should not assume that a rental loss will produce an immediate annual tax benefit.

Thinking about purchasing an investment property?

The new negative-gearing rules could affect your cash flow, borrowing capacity and the type of property that best suits your plans.

Loan Location can help you compare investment loan options, review how different lenders may assess your position and pressure-test the numbers before you commit to a property.

This article provides general information only. It does not constitute personal tax, financial, investment, credit or legal advice. Tax treatment depends on the property, acquisition date, ownership structure and individual circumstances. Seek advice from a registered tax agent, financial adviser or solicitor where appropriate. Lenders may change their criteria and policies at any time.

Official sources

• Federal Register of Legislation — Treasury Laws Amendment (Tax Reform No. 1) Act 2026
• Australian Treasury — Budget 2026–27 tax system changes
• Parliament of Australia — Treasury Laws Amendment (Tax Reform No. 1) Bill 2026
• Parliamentary Library — Bills Digest