By Jason Skinner | Money Matters Column
If you own an investment property, or have been thinking about buying one, the 2026-27 Federal Budget delivered a proposed change you cannot afford to ignore. Whilst the following information has not yet been fully passed through parliament, the government has announced a significant restriction on negative gearing, one of the most widely used property investment strategies in Australia.
Here’s what it may mean and what you should be considering right now.
What Is Negative Gearing and Why Does It Matter?
Negative gearing occurs when the costs of owning an income-producing investment, for example, a rental property with costs such as loan interest, rates, insurance, maintenance, and other expenses, are higher than the rent or income the investment generates in a financial year.
Under the current rules, that net rental loss can be offset against your other assessable Income, most commonly your salary or wages, reducing the overall tax you pay in your annual tax return. It’s a strategy currently used by millions of Australians to build wealth and make owning an investment property more affordable. That may about to change.
What Proposal Was Announced in the Budget?
On 12 May this year, during the Federal Budget, the Treasurer announced that from 1 July 2027, losses from established residential properties will only be deductible against rental Income or capital gains from other residential properties. They will no longer be able to offset your salary or other Income. Any excess losses will be carried forward and applied against residential property income in future years. In short, the immediate tax benefit most investors currently rely on will be gone.
Importantly, this propsed change only applies to established residential properties acquired after 7:30 PM AEST on Budget night — 12 May 2026. If you already owned an investment property before that time, or had a contract signed (even if not yet settled), you are exempt from the changes until you sell the property.
What Is Still Allowed?
The government has carved out some important exceptions to these proposed new rules:
New builds will remain fully negatively geared. If you invest in a newly constructed residential property, the existing negative gearing rules continue to apply. This is a deliberate move — the policy is designed to redirect investment incentives toward increasing housing supply rather than competing for existing stock.
Properties in self-managed superannuation funds are excluded from the changes, as are build-to-rent developments and certain investors supporting government housing programs.
What This Means If You’re an Existing Investor
If you already hold negatively geared investment properties, the immediate news is reassuring — your current arrangements are “grandfathered” until you sell. There is no pressure to act right now. However, the Budget context is worth keeping in mind.
What This Means If You’re Thinking of Buying
If you were considering purchasing an established investment property, the window to do so under the current rules has effectively closed — the proposed change applies to purchases made after Budget night. Any property you buy now will be subject to the new restrictions from 1 July 2027.
That doesn’t necessarily make property investment unviable, but it does change the numbers. You will need to assess an investment on the basis of its rental yield and capital growth potential rather than the tax refunds on losses, unless you are looking at a new build.
The Bigger Picture
The government’s stated goal is to redirect investment activity toward new housing construction at a time when Australians face a serious housing shortage. By preserving negative gearing for new builds while restricting it for established properties, the Budget is effectively attempting to use the tax system to reshape investor behaviour.
Whether that achieves its intended effect on housing supply and affordability remains to be seen. What is certain is the decisions you make in the months ahead — particularly around whether to buy, sell or hold — will be shaped by which side of the 12 May 2026 line you sit on.
Lets look at a practical example.
Mary owns a negatively geared rental property that she purchased prior to 12 May budget night. Her annual costs to fund her rental property, such as rates and interest on her loan, etc, are higher than the rent she receives on the property by $8,000 for the financial year. This means she now has a loss of $8,000 which she can offset against her other Income from her employment of $90,000 for the year.
Eg:
Salary & Wages Income $90,000
Less Rental Loss ($ 8,000)
Taxable Income $82,000
Under the old rules, Mary would get an estimated tax refund of approximately $2,560 in her bank account.
Let’s assume the same facts for Mark who purchased his established property after 12 May 2026.
With the budget changes in place, Mark would not be able to offset the $8,000 loss from his Salary & Wage Income and would have to pay tax on his full salary.
Eg.
Salary & Wages Income $90,000
Less Rental Loss $0.00
Taxable Income $90,000
Mark would be out of pocket $2,560 in additional tax. He would, however, be able to carry the $8,000 loss from the property to a year in which the property does make a profit.
If Mark purchased a brand new residential property under the same circumstances, he would be able to claim the $8,000 loss and be in the same position as Mary with a refund of $2,560.
What to Do Now
It’s important to note these changes have not passed through parliament and are not yet law. They are merely the policies/laws the government intend to see implemented, so their final format and consequences may differ if enacted.
However, if you currently have investment properties or are actively considering purchasing one, this is the moment to sit down with your financial adviser or accountant and model out what the changes would mean for your specific situation.
The grandfathering provisions provide breathing room for existing investors, but planning ahead for your wealth creation has never been more important.
Importantly
The information in this article is general in nature and does not constitute financial or tax advice. Please seek professional advice tailored to your circumstances.
Jason is a CPA Accountant and the principal of Milk Bookkeeping and Advisory located locally in the Bellingen Shire.