Negative Gearing Changes in the 2026–27 Budget: What Property Investors Need to Know

The 2026–27 Federal Budget introduces significant reforms to negative gearing — changes that will reshape how investors manage cash flow, structure portfolios, and plan long‑term tax strategies. 

This article provides a complete, standalone explanation of the new rules, including timelines, comparison tables, investor scenarios, ownership‑structure impacts, and practical implications. It is important to note that these changes are yet to be legislated. We also link below to our companion article on Capital Gains Tax Reform, and our Summary of Budget Changes article that covers both reforms in one place.  

These articles are for information purposes only and should not be relied upon for individual financial advice. 

1. Overview: What Is ChangingWithNegative Gearing? 

From 1 July 2027, traditional negative gearing will be restricted to new residential properties only. 

Key points: 

• Existing properties purchased before 12 May 2026 are fully grandfathered 

• Established properties purchased after 1 July 2027 cannot be negatively geared 

• Losses for established properties can still be carried forward 

• New builds retain full negative gearing benefits 

2. Timeline of Negative Gearing Reform

1. Check purchase date rules – Properties bought before 12 May 2026 retain full negative‑gearing benefits. 
2. Understand interim period rules – Established properties purchased between 12 May 2026 and 30 June 2027 can be negatively geared only until 1 July 2027. 
3. Apply new rules from 2027 – From 1 July 2027, only new builds can be negatively geared. Established properties can no longer offset losses against salary or wage income. 
4. Use carried‑forward losses – Losses from established properties can still offset future rental income or capital gains within the property portfolio.

3. Negative Gearing Rules — Comparison Table

Property Type	Purchased Before 12 May 2026	Purchased 12 May 2026 – 30 June 2027	Purchased After 1 July 2027
New Build	✔️ Negative gearing allowed	✔️ Allowed	✔️ Allowed
Established Property	✔️ Fully grandfathered	✔️ Until 1 July 2027	❌ Not allowed

4. What Happens to Losses?

Even when negative gearing is restricted, losses are not lost. 

Losses can still be used to: 

• Offset future rental income 

• Offset gains from other properties 

• Reduce taxable profit at a CGT event 

This makes accurate annual recording of all losses — including depreciation — more important than ever. 

5. Investor Scenarios

Scenario 1: You Own an Established Property Purchased in 2020 

• Fully grandfathered 

• Negative gearing continues 

• Depreciation continues to reduce taxable income 

Scenario 2: You Buy an Established Property in 2028 

• Cannot be negatively geared 

• Losses carried forward 

• Depreciation helps reduce future taxable rental income 

Scenario 3: You Buy a New Build in 2028 

• Full negative gearing applies 

• Depreciation maximises early‑year deductions 

6. Which Ownership Structures and Property Types Are Affected — and Which Are Exempt?

The negative‑gearing reforms apply only to residential property. Commercial property is fully exempt. 

This means the new rules do not apply to: 

• Offices 

• Retail shops 

• Industrial units 

• Warehouses 

• Medical suites 

• Gyms 

• Hospitality venues 

• Commercial strata units 

• Mixed‑use properties where the commercial portion is dominant 

Commercial investors can continue to: 

• Negatively gear commercial properties regardless of purchase date 

• Claim full deductions for interest, outgoings, and depreciation 

• Use losses against other income (subject to normal tax rules) 

6.1 Ownership Structures Affected by the New Rules 

1. Individual Investors (Most Common)

✔️ Fully affected 

• Individuals who own property in their personal name are directly impacted. 

• They can no longer offset losses from established properties (purchased after 1 July 2027) against salary or wage income. 

2. Joint Owners (Spouses, Family Members)

✔️ Fully affected 

• Joint owners are treated the same as individual owners. 

• Losses from established properties purchased after 1 July 2027 cannot be used against personal income. 

3. Trusts (Discretionary, Unit, Hybrid)

✔️ Affected 

• Trusts cannot distribute rental losses to beneficiaries. 

• Losses from established properties purchased after 1 July 2027 must be carried forward within the trust. 

• New builds still allow full negative gearing inside the trust. 

4. Partnerships

✔️ Affected 

• Partnerships cannot pass negative losses through to partners for personal income offset. 

• Losses must be carried forward within the partnership unless the property is a new build. 

5. SMSFs (Self‑ManagedSuper Funds)

✔️ Affected indirectly 

• SMSFs rarely rely on negative gearing because contributions caps limit cash injections. 

• However, SMSFs with LRBA‑financed property may see reduced tax efficiency for established properties purchased after 1 July 2027. 

6.2 Ownership Structures Largely Exempt or Unaffected 

1. Companies

✔️ Largely exempt from the negative‑gearing restriction 

• Companies do not use negative gearing in the same way individuals do. 

• Rental losses are simply carried forward and applied against future company income. 

• The reforms do not change how companies deduct property losses. 

2. Large‑ScaleBuild‑to‑Rent Developers 

✔️ Exempt 

• The reforms target individual investor behaviour, not institutional developers. 

• Build‑to‑rent projects continue to access full deductions. 

3. Government,Not‑for‑Profit, and Charitable Housing Providers

✔️ Exempt 

• These entities do not rely on negative gearing and are unaffected by the changes. 

6.3 Property Type Summary — Residential vs Commercial 

Property Type	Impact of Negative Gearing Changes
Residential – New Build	✔️ Still eligible for negative gearing
Residential – Established (post‑1 July 2027)	❌ Negative gearing removed
Residential – Grandfathered (pre‑12 May 2026)	✔️ Fully preserved
Commercial Property (all types)	❌ Completely exempt
Mixed‑Use (commercial dominant)	❌ Exempt
Mixed‑Use (residential dominant)	✔️ Residential portion affected

 

6.4 Summary Table — Ownership Structure Impact 

Ownership Structure	Impact of Negative Gearing Changes
Individuals	✔️ Fully affected
Joint owners	✔️ Fully affected
Trusts	✔️ Affected — losses quarantined and carried forward
Partnerships	✔️ Affected — losses quarantined and carried forward
SMSFs	✔️ Affected indirectly
Companies	❌ Largely exempt
Institutional developers	❌ Exempt
Government / NFP housing providers	❌ Exempt

7. Why Depreciation Schedules Matter Under the New Rules

Depreciation schedules: 

• Maximise deductions for use in cash‑flow‑positive years 

• Support carried‑forward losses 

• Help to reduce future CGT 

• Ensure all property‑related expenses are captured 

8. How Negative Gearing Helps Reduce Capital Gains Tax 

This is how negative gearing helps to reduce Capital Gains Tax (CGT). 

1. Carried‑ForwardLosses Reduce the Capital Gain 

Losses that can no longer be used against salary income accumulate and can later be applied to reduce the net capital gain when the property is sold. 

2. Depreciation Affects the Cost Base

• Division 43 capital works deductions reduce the cost base. 

• Division 40 plant & equipment deductions do not. A depreciation schedule ensures these adjustments are accurate and defensible. 

3. Depreciation IncreasesCarried‑ForwardLosses 

For established properties purchased after 1 July 2027, depreciation will often increase annual losses, which later reduce CGT. 

4. CGT Becomes the Main Tax Event Where Investors Recover Value

With negative gearing restricted, the CGT event becomes the key moment where investors “unlock” the tax value of years of accumulated losses. 

9. Related Articles

• Read the Capital Gains Tax Reform Article (companion piece) 

• Read the Pillar Post covering both reforms
  

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