Negative Gearing Reforms – 2026–27 Federal Budget Update
Negative gearing is an important tax consideration for Australian property investors, particularly those who use borrowed funds to purchase residential investment properties.
Under the existing negative gearing rules, where an investment property's allowable expenses exceed its rental income, the resulting net rental loss can generally be offset against other assessable income, such as salary or business income, subject to applicable tax rules.
For example, an investor receiving $25,000 in annual rental income and incurring $35,000 in deductible expenses may have a $10,000 rental loss available to offset against other assessable income.
The key question for the 2026–27 Federal Budget is whether any changes to these deductions have been formally announced or legislated.
What Has Changed?
The Australian Government announced significant negative gearing reforms in the 2026–27 Federal Budget, delivered on 12 May 2026. The core reforms have since been legislated and will take effect from 1 July 2027.
The key changes are:
| Property category | Negative gearing treatment from 1 July 2027 |
|---|---|
| Established investment property held 12 May 2026 | Existing negative gearing treatment preserved until disposal |
| Established property purchased after that time | Rental losses generally cannot offset salary or other non-residential income |
| Eligible newly built residential property | Negative gearing remains available |
| Commercial property and shares | Existing negative gearing treatment generally continues |
Investors acquiring established properties after Budget night may still use eligible losses against residential property rental income or capital gains and carry forward unused losses. Transitional rules also apply to purchases made before 1 July 2027. Some detailed exceptions and definitions remain subject to further legislation.
Example: How the Changes Affect Property Investors
Assume an investor earns $120,000 in annual salary and has an investment property generating a $15,000 net rental loss.
| Existing rules | New restrictions | |
|---|---|---|
| Annual salary | $120,000 | $120,000 |
| Net rental loss | $15,000 | $15,000 |
| Loss offset against salary | $15,000 | $0 |
| Taxable salary after rental offset | $105,000 | $120,000 |
| Rental loss carried forward | $0 | $15,000 |
This simplified example assumes no other rental income or relevant gains and illustrates the timing of deductions rather than their ultimate tax value.
What Should Investors Consider?
Investors may need to reassess the after-tax cash flow of established properties, compare eligible new-build investments and review their longer-term borrowing strategies.
The Budget also introduced changes to capital gains tax, so decisions about purchasing, holding or selling investment properties should consider both reforms.
Planning to purchase or refinance an investment property?
The 2026–27 Federal Budget changes may impact your investment property's tax deductions and cash flow. At Suttie Financial Group, our integrated accounting, taxation and mortgage broking services can help you understand the tax implications, evaluate your financing options and make informed property investment decisions.
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