Negative gearing has been a cornerstone of Australian property investment strategy for decades. The 2026-27 Budget confirms changes that will affect investors who own or are planning to acquire investment properties — though the impact will vary significantly depending on your current position.

What Is Negative Gearing?

Negative gearing occurs when the costs of owning an investment property including loan interest, property management fees, maintenance, council rates, and depreciation exceed the rental income it generates. Under the current rules, that net loss can be deducted against your other income, including salary or wages, reducing your overall tax bill.

What Has Changed

Existing investment properties are fully protected. If you already own a negatively geared investment property, your ability to offset those losses against your other income will continue unchanged for as long as you hold that property. For established residential properties acquired after 7:30pm AEST on 12 May 2026, the rules change from 1 July 2027. Losses from these properties will only be deductible against rental income or capital gains from residential properties they cannot be used to reduce your salary or wage income. An exception applies for new builds: negative gearing deductions remain fully available for newly constructed properties.

Who Is Affected

If you own existing investment properties and have no plans to acquire more, the practical impact is limited. The change becomes relevant when you consider your next acquisition. Any established residential property purchased after 7:30pm on 12 May 2026 will be subject to the new quarantining rules from 1 July 2027. Contracts entered into before that time including those not yet settled are covered by the grandfathering provisions.

The Combined Effect

For a high-income investor who has been using rental losses to reduce their taxable income, the loss of that deduction against salary income represents a real increase in annual after-tax cost. The negative gearing changes also interact directly with the CGT changes the combined effect on the economics of acquiring a new established investment property is material.

If you are considering purchasing another investment property, the rules have changed in ways that affect both your ongoing cash flow and your future capital gains position.

Please contact us before you proceed we can model the after-tax return under the new rules and help you decide whether a new build or established property better suits your circumstances.

t: +61 7 3177 4120
e: advisors@hksrussell.com

Posted on May 15, 2026 by Charisse Russell - Articles