Federal Budget 2026-27 Spotlight – Negative Gearing

Reform of the capital gains tax regime was perhaps the biggest announcement of the 2026-27 Federal Budget, with the 50% CGT discount to all but disappear from 1 July 2027. However, alongside changes to the CGT rules, the Federal Budget announced that the availability of negative gearing would be curbed for residential property investors.

What is negative gearing, and who do these changes affect?

What is negative gearing?

Negative gearing is a term that’s used to describe a situation (most often involving rental properties) where expenses associated with an asset, including any interest expenses, are greater than the income that asset produces.Under current tax rules, a loss that a negatively geared asset generates can be used against an individual’s other income, such as their salary or wages. In the context of rental properties, negative gearing provides investors with a powerful tax deduction that is not available to owner-occupiers.

What’s changing?

At the 2026-27 Federal Budget, the Government announced that, from 1 July 2027, negative gearing for residential property will be limited, and will only be allowed for investments in new builds.

Losses from established residential investment properties will become ring-fenced, meaning they will only be deductible against other income from residential properties, including capital gains. Any excess losses can be carried forward to offset residential property income in future years. This puts an end to an investor’s ability to use rental losses from established residential investment properties to offset other sources of income.

These changes will apply to individuals, partnerships, companies and most trusts.

Transitional arrangements

For established residential investment properties, different transitional measures apply depending on when the property was acquired:

Properties held prior to 7:30pm AEST 12 May 2026 (including where a contract has been entered into, but not yet settled) can continue to be negatively geared – even after 1 July 2027 – until that property is sold. This grandfathering measure allows taxpayers who have already invested in an established residential property to continue to benefit from the existing negative gearing rules.

Properties purchased between 7:30pm AEST 12 May 2026 and 30 June 2027 can continue to be negatively geared until 30 June 2027, but will be subject to the new rules from 1 July 2027.

Properties purchased from 1 July 2027 will be subject to the new rules.

Investments in qualifying new build residential properties are exempt from these reforms, and can continue to be negatively geared before and after 1 July 2027.

This carve out for new builds is an intentional move by the Government, with the hope that investors will turn their interest towards investments in assets that ultimately increase housing stock.

Exclusions

The announced negative gearing reforms only apply to residential property (namely, investments in established residential property). Commercial property and other asset classes (e.g. shares) can still benefit from the existing negative gearing rules.

Similarly, properties in widely held trusts (for example, most managed investment trusts) and superannuation funds (including SMSFs) will be excluded from the reforms, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

Do the negative gearing changes impact you?

Want to find out more about how the negative gearing or capital gains tax announcements will impact your tax position? Speak to a member of our team today.