Negative Gearing Australia 2026: What It Actually Means and Who Benefits

What Is Negative Gearing, Really?

"Gearing" simply means borrowing money to invest. When you take out a loan to buy an investment property, you are geared. You become negatively geared when the costs of owning that property are higher than the rental income it brings in — meaning the property runs at a loss.

Those costs include mortgage interest (by far the biggest item for most investors), property management fees, council rates, insurance, repairs, maintenance, and depreciation on the building and its fixtures.

For example, suppose you own a unit in Brisbane. It earns $28,000 a year in rent, but your total holding costs — interest, rates, insurance, depreciation, and management fees — come to $42,000 a year. You have a net rental loss of $14,000. That is negative gearing.

Under the rules that applied until the 2026 Budget announcement, you could deduct that $14,000 loss directly against your salary or other income, reducing your overall taxable income for the year. The ATO calls this offsetting losses from one income source against another, and for decades it was a completely unrestricted benefit for Australian property investors.

How the Tax Saving Actually Works

The value of negative gearing has always depended on your marginal tax rate — the rate at which your last dollar of income is taxed. Australia's 2026-27 income tax brackets are: 0% on the first $18,200, 19% up to $45,000, 32.5% up to $135,000, 37% up to $190,000, and 45% above that. Medicare levy adds another 2%.

So if you earn $130,000 a year and your investment property produces a $14,000 net loss, you reduce your taxable income to $116,000. At the 32.5% marginal rate, that saves you around $4,550 in tax. If you earn $200,000 and face a 47% marginal rate (including Medicare levy), the same $14,000 loss saves you $6,580.

This is why critics of negative gearing have long argued that it disproportionately benefits high earners — the higher your income, the more the tax system subsidises your property loss. Use CalcPhi's free Income Tax Calculator to model your own marginal rate and see exactly how much you would save.

The 2026 Budget: The Rules Are Changing

On 12 May 2026, the Albanese Government announced it would reform both negative gearing and capital gains tax as part of the 2026-27 Federal Budget. This is the most significant change to investment property tax rules in a generation, and it is critical to understand what changes, when it changes, and — crucially — what is grandfathered.

What Is Changing

From 1 July 2027, losses from established residential properties purchased after 7:30pm AEST on 12 May 2026 will no longer be deductible against salary, wages, business income, or any other non-property income. Instead, those losses will be quarantined — they can only be offset against other residential rental property income, or carried forward to be applied against future rental income or capital gains from residential properties.

The loss does not disappear. You do not lose it entirely. But you lose the ability to use it as an immediate tax refund against your pay cheque each year. For an investor relying on a $5,000–$8,000 annual tax saving to make the numbers work, this is a material change.

Separately, the 50% capital gains tax (CGT) discount for individuals, trusts, and partnerships will be replaced from 1 July 2027 with cost-base indexation and a 30% minimum tax on net capital gains. This affects how much tax you pay when you eventually sell. Use CalcPhi's Capital Gains Tax Calculator to model what you would pay under both the existing and proposed frameworks.

What Is Grandfathered (Not Changing)

Existing investors are substantially protected. If you owned or had exchanged contracts on a residential investment property before 7:30pm on 12 May 2026, the current rules continue to apply to that property for as long as you hold it. You can keep deducting your net rental losses against all other income under the existing system. This applies even if the property has not yet settled — contract date is what matters, not settlement date.

New Builds Remain Exempt

This is a key detail. The new restrictions apply to established residential properties only. New residential builds — properties purchased as newly constructed homes — remain exempt. Investors in new builds can still access full negative gearing deductions against all income, and the 50% CGT discount will also still be available for new builds. The government's stated intention is to encourage construction of new housing supply while reducing the tax advantage of buying existing homes.

Other Exemptions

Properties held through widely-held trusts and superannuation funds are exempt from the new rules. Build-to-rent developments and private investors participating in Government Housing programs also retain access to the existing arrangements.

Who Benefits from Negative Gearing (and Who Doesn't)

Negative gearing under the current rules has always favoured a specific profile of investor. Here is who genuinely benefits, and who is largely unaffected.

High-Income Earners Benefit Most

The tax saving scales with your marginal rate. Someone on $200,000+ gets 47 cents back for every dollar of rental loss. Someone on $60,000 gets 34.5 cents. Someone on $40,000 gets 21 cents. The strategy is therefore most powerful for professionals — doctors, lawyers, engineers, finance workers — with high and stable salaries. The ATO's own data consistently shows the majority of negatively geared investors earn above-average incomes.

Long-Term Capital Growth Investors

Negative gearing as a strategy only makes financial sense if the property grows in value over time. The annual loss you carry while the property is negatively geared needs to be recovered — and then some — through capital growth when you eventually sell. This is why many negative gearing strategies are fundamentally capital growth plays, not income plays. If property values stagnate, the accumulated losses may never be offset by the eventual sale price. CalcPhi's Rent vs Buy Calculator gives a useful framework for understanding the true costs on either side of the ledger.

Property Investors with Mortgages Already In Place

Investors who bought before May 2026 are grandfathered. If you locked in before Budget night, your existing strategy is protected. You may want to review it with an accountant to understand your full position as the 2027 transition approaches, but the immediate benefit is preserved.

Who Is Less Likely to Benefit

First home buyers receive no benefit from negative gearing — it is an investor tax strategy that applies only to rental properties, not owner-occupied homes. This is one of the most persistent misunderstandings about the concept. Low-income earners also benefit far less due to their lower marginal rates. And investors focused purely on rental yield — where the property produces positive cash flow — are positively geared and cannot claim negative gearing deductions at all.

A Worked Example: Before and After the Reform

Before 1 July 2027 (Existing Rules, or Grandfathered Properties)

Sarah earns $130,000 a year and owns an investment unit purchased in March 2025. Her rental income is $28,000 and her annual property expenses total $42,000, producing a $14,000 net loss.

She deducts the $14,000 against her salary. Her taxable income drops to $116,000. At a blended effective rate, she saves approximately $4,550 in tax. Her net after-tax cost of holding the property is $14,000 minus $4,550 = $9,450 per year. She is banking on capital growth to make the investment worthwhile.

After 1 July 2027 (New Rules, for Established Properties Bought After 12 May 2026)

James buys an established investment apartment in July 2026 for $750,000. He earns $150,000 a year. His rental income is $30,000 and his annual holding costs are $45,000 — a $15,000 net loss. Under the new rules, James cannot deduct that loss against his salary. The loss is quarantined. His taxable income remains $150,000. He carries the $15,000 forward to apply against future rental income or eventual sale proceeds. His annual after-tax holding cost is the full $15,000 — significantly higher than under the old rules.

This difference in holding cost changes the investment calculus completely. The property now needs to perform on its own rental and growth merits without a government-funded annual tax subsidy. Use CalcPhi's Mortgage Calculator to break down monthly repayments, total interest, and your full loan cost over any term.

What Should Investors Do Now?

If you already own a negatively geared property under the old rules, your position is protected. Keep detailed records of your contract date and ensure your depreciation schedule is up to date — a current schedule from a quantity surveyor can significantly increase your deductible depreciation each year.

If you are considering buying an investment property now, the decision tree has changed. Established properties purchased after 12 May 2026 will lose the immediate negative gearing tax benefit from July 2027. New builds retain the full benefit. If your investment strategy was dependent on offsetting losses against salary, that calculus changes entirely for established property purchases made today.

Given the CGT changes also taking effect in 2027, the after-sale tax picture is also different. Speaking with a qualified accountant who specialises in property investment is now more important than it has been in years.

Frequently Asked Questions

• What does negatively geared mean in Australia?

  A property is negatively geared when its annual costs — mortgage interest, rates, insurance, management fees, and depreciation — exceed the rental income it earns. The resulting net loss was historically deductible against all other income (salary, wages, business income). Under the new 2026 Budget rules, that broad deductibility is being restricted for established properties purchased after 12 May 2026.

• Is negative gearing being abolished in Australia?

  Not completely. The 2026 Federal Budget announced that from 1 July 2027, negative gearing for established residential properties purchased after 7:30pm on 12 May 2026 will be restricted — losses can only be offset against other rental income or carried forward, not deducted against salary. New builds and grandfathered properties (purchased before Budget night) are not affected by the changes.

• Who benefits most from negative gearing?

  High-income earners benefit the most because their higher marginal tax rate means each dollar of rental loss saves more in tax. Someone on a 47% marginal rate saves 47 cents per dollar of loss; someone on 34.5% saves far less. This is why the strategy has historically been most popular with professionals earning above $120,000 a year.

• Does negative gearing actually reduce house prices?

  This is heavily debated among economists. The argument for restriction is that negative gearing increases demand for established housing, pushing up prices and reducing affordability for first home buyers. The counter-argument is that investors also supply rental properties, keeping rents lower. The evidence is mixed, which is why the 2026 reforms target established properties while protecting new builds to encourage supply.

• Can I still buy a new build and negatively gear it after July 2027?

  Yes. The new restrictions apply only to established residential properties. New builds remain exempt from the changes, meaning investors can still deduct net rental losses against salary and other income, and the 50% CGT discount is also preserved for new builds. The government's intent is to channel investment demand toward new construction rather than existing housing stock.

• What happens to the losses I can no longer offset immediately?

  Under the new rules, losses on restricted properties are not lost entirely — they are quarantined and carried forward. You can apply them against future residential rental income in subsequent years, or against capital gains when you eventually sell the property. You do not receive the immediate annual tax refund you would have under the old system, but the accumulated losses can still reduce your tax bill at the time of sale.