What is Negative Gearing?
Synopsis
Negative gearing has been reshaped under Australia’s 2026 tax reforms. Here’s how the tax strategy works, what has changed for investment properties, and what it means for current and future property investors.
For nearly thirty years, negative gearing was the tax debate that never quite happened.
Politicians circled it, think tanks modelled it, two Labour election campaigns were arguably lost over it, and nothing changed. That run has now ended. On Budget night in May 2026, the
Albanese government announced the biggest shake-up to property investor tax in a generation, and by late June it was law. If you own an investment property, are thinking about buying one, or want to understand why the topic dominates dinner-party arguments, this is the moment to get your head around how negative gearing actually works and what is about to change.
The idea in one breath Gearing just means borrowing to invest. When you take out a loan to buy an asset, a rental flat, a parcel of shares, you are geared. Whether that gearing is positive or negative depends on the arithmetic of holding it.
A property is positively geared when the income it generates, mostly rent, exceeds the cost of owning it. You make a cash profit, and you pay tax on it. It is negatively geared when the running costs, loan interest above all, plus rates, insurance, repairs, property management and depreciation add up to more than the rent. The investment runs at a loss.
Here is the part that has made negative gearing a national institution. Under Australia's tax rules, that loss doesn't just sit there. You can generally deduct it against your other income, including your salary or wages, which lowers your overall taxable income and hands back some tax. Investors have long worn those annual losses on the bet that the eventual capital gain, taxed thanks lightly to the 50% capital gains tax discount, will more than make up for them. Rent for the holding period, capital growth for the payday.
What that looks like in dollars
Take an illustrative case. An investor buys an established unit for $600,000, borrows $480,000 at about 6.2%, and collects roughly $27,000 a year in rent. Loan interest runs close to $29,760. Add another $7,000 or so for council rates, insurance, maintenance and a managing agent, and the property is losing about $10,000 a year.
Under the rules most investors have known their whole lives, that $10,000 loss comes straight off the owner's taxable income. On a $120,000 salary, at a marginal rate near 39% including the Medicare levy, the loss claws back roughly $3,900 in tax. The property still costs money to hold, but the taxman is quietly subsidising a chunk of it. Multiply that across the country, and you begin to see why this is not a niche accounting quirk.
Why it matters so much
Two reasons: money and politics, and they feed each other.
The money is real. Negative gearing by property investors reduced personal income tax revenue by about $10.9 billion in 2023–24, up from $6.7 billion a decade earlier, and
Treasury figures had it climbing further. Bundle it with the capital gains tax discount and analysts such as the Australia Institute put the combined cost to the budget at roughly $20 billion a year, more than the states spend on public and community housing.
Politics is just as loaded. Labour took a plan to restrict negative gearing to new homes and halved the CGT discount to the 2016 and 2019 elections, and lost both. The Coalition ran hard on the line that ordinary Australians, teachers, nurses, and electricians use the concession, and by sheer headcount that is true: plenty of middle-income earners own a geared rental. What that framing skates over is the Grattan Institute's finding that the dollar benefit skews heavily toward higher-income taxpayers, who borrow more, hold more property and claim larger deductions. Both things can be correct at once, which is exactly why the argument never resolves cleanly.
What is actually changing
Here is the substance, and it is more surgical than the slogans suggest. The government hasnot abolished negative gearing. It has narrowed it.
From 1 July 2027, losses on established residential properties bought after 7:30 pm AEST on 12 May 2026 - Budget night- can no longer be offset against salary or wages. Instead they are "quarantined": they can only be deducted against residential rental income or against capital gains from residential property, and any leftover loss is carried forward, indefinitely, until you have that kind of income to soak it up. The tax break doesn't vanish, but the timing does. The savings you used to bank this year now waits, sometimes for years, until you earn rental profits or sell.
Three carve-outs matter. First, grandfathering: if you owned the property, or had a contract signed, before that 7:30 pm cut-off, nothing changes. You keep negative gearing under the old rules for as long as you hold it. This is prospective, not retrospective. Second, new builds are exempt; buy a qualifying newly built dwelling, and you retain full negative gearing, which is the whole point; the reform is designed to push investor money toward adding housing supply rather than trading existing stock. Third, this is a residential-property measure. Commercial property, shares and other assets can still be negatively geared against your broader income as before. If you gear a share portfolio, the change does not touch you.
There is a sting in the tail alongside it. The same legislation replaces the 50% CGT discount, for gains accruing from 1 July 2027, with a cost-base indexation model plus a 30% minimum tax rate on capital gains for individuals, trusts and partnerships. So the two halves of the old property bet soft losses now, soft gains later are both being firmed up together. The bill cleared both houses on 25 June after the government struck a deal with the Greens, who extracted an amendment barring self-managed super funds from borrowing to buy property in future.
Will it move house prices?
Cautiously, a little, is the honest answer. The credible modelling does not support the doomsday or the utopian version. Grattan's work has long put the combined price effect of negative gearing and the CGT discount at around 1 to 2%, meaningful at the margin, trivial next to interest rates and land supply. Commonwealth Bank's economists expect dwelling prices to end up roughly 3% lower than they otherwise would have been, and trimmed their near-term growth forecast accordingly. Rents are the genuine worry: some modelling suggests restricting the concession to new builds could modestly slow construction starts and nudge rents up, which is why the design leans so hard on keeping new builds inside the tent.
What it means for you
If you already own a geared investment property, take a breath; you are almost certainly grandfathered, and your arrangements continue untouched. The decision point is sharpest for anyone buying from here on. The tax maths on an established rental is simply less generous than it was a year ago, while a qualifying new build now carries a tax advantage its the established rival has lost. For some buyers that will tip the sums; for others, in oversupplied corridors, new builds bring their own risks around valuation and body-corporate costs.
None of this is a substitute for advice on your own position. Depreciation schedules, the definition of a "new build", how the quarantined losses interact with a future sale, these are the details that decide real outcomes, and they reward a conversation with a registered tax agent rather than a rule of thumb.
The bigger question sits above any single investor. Negative gearing survived thirty years of attempts to change it because it was woven into how Australians build wealth. It has finally been reshaped not to punish landlords but to bribe them, gently, toward building something new. Whether that actually delivers more homes is the number worth watching. The tax change is settled. The housing result is no
At Inspirepreneurs Magazine, covering entrepreneurship, business failures, and the human stories behind the world's most ambitious founders. She writes at the intersection of strategy and storytelling.
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