Impact on Negative gearing – Investors need to understand for strategic investment

Australia’s property market is facing important tax changes that could affect property investors, landlords and people considering an investment property. The Australian Government has announced reforms to negative gearing and capital gains tax (CGT) as part of its 2026–27 Budget.

The proposed changes are scheduled to begin from 1 July 2027 and are designed to encourage investment in new housing while changing how certain property losses and capital gains are taxed.

For property investors, understanding these changes early can help with making informed decisions about borrowing, purchasing an investment property and planning for future tax obligations.

What Is Negative Gearing?

Negative gearing occurs when the costs of owning an investment property are higher than the rental income generated by the property. These costs can include loan interest, property management fees, maintenance and other eligible expenses.

Under the current system, a rental property loss can generally be used to reduce other taxable income, such as salary and wages.

From 1 July 2027, the proposed rules will change the way losses from certain residential investment properties can be used.

For residential properties purchased after 7:30pm AEST on 12 May 2026, rental losses will generally only be deductible against other residential property income, including capital gains. Unused losses can be carried forward for use against eligible residential property income in future years.

What Happens to Existing Investment Properties?

The reforms include transitional arrangements to protect investors who had already made property investment decisions.

Properties held before the Government’s announcement on 12 May 2026 will continue to be eligible for negative gearing under the existing arrangements until they are sold.

Properties purchased between the announcement and 30 June 2027 may be negatively geared during that period, but the new rules will apply from 1 July 2027.

Properties purchased from 1 July 2027 will generally not be eligible for negative gearing against non-property income unless they meet the new-build requirements.

New Builds Receive Special Treatment

One of the key features of the proposed reform is the treatment of newly constructed residential properties.

Investors who purchase eligible new-build properties will continue to have access to negative gearing. This means rental losses from an eligible new build may still be used to reduce taxable income, including salary and wages.

Examples of eligible new builds include:

  • Residential properties constructed on vacant land

  • Certain newly constructed apartments purchased off the plan

  • Certain duplexes created through eligible knock-down rebuilds

  • New residential construction that genuinely increases housing supply

However, not every renovation or extension will qualify as a new build. The Government’s fact sheet provides specific examples of properties that will and will not qualify.

How Will Capital Gains Tax Change?

The proposed reforms will also change the way capital gains are calculated for individuals, partnerships and trusts.

Currently, eligible individuals may receive a 50% CGT discount on assets held for more than 12 months.

From 1 July 2027, the Government proposes to replace this approach with cost-base indexation and introduce a 30% minimum tax rate on real capital gains for affected taxpayers.

Cost-base indexation is intended to account for inflation during the period an asset is held. This means the taxable gain will take inflation into consideration rather than simply applying a fixed 50% discount.

The impact will vary depending on factors such as the property’s growth, inflation and the investor’s tax position.

What Does This Mean for Property Investors?

The impact will not be the same for every investor.

Someone purchasing a new-build investment property may continue to receive negative gearing benefits under the proposed rules.

On the other hand, an investor purchasing an established residential property after the relevant commencement date may need to carry forward rental losses instead of immediately using them against salary or other non-property income.

This makes it increasingly important for investors to consider more than just the purchase price and expected rental income.

Before purchasing an investment property, investors should consider:

  • Expected rental income

  • Loan interest and borrowing costs

  • Potential tax deductions

  • Property expenses

  • Future capital growth

  • Potential CGT obligations

  • Whether the property qualifies as an eligible new build

  • Their overall borrowing capacity

How Could the Changes Affect Your Property Loan?

Tax changes can also influence the way investors approach property finance.

Borrowing capacity, deposit requirements, loan structure, interest rates and expected rental income all need to be considered when purchasing an investment property.

If you are planning to purchase an investment property, speaking with an experienced mortgage broker can help you understand your financing options and compare suitable loan structures.

Naga Mortgage Brokers can assist borrowers in exploring home loan and investment property finance options based on their individual circumstances.

Should You Buy an Investment Property Before 2027?

There is no single answer that applies to every investor.

The proposed reforms include detailed transitional arrangements, and rushing into a property purchase purely because of a tax change may not always be the right strategy.

Instead, investors should look at the complete investment picture, including the property’s location, rental demand, purchase price, financing costs, expected returns and long-term investment objectives.

Tax treatment should be one part of the decision rather than the only reason to purchase a property.

Get Professional Advice Before Making a Decision

The proposed negative gearing and CGT changes could have different consequences depending on when you purchase a property, whether it is a new build or established property, your income and your investment strategy.

The Australian Government’s Budget fact sheet provides the current proposed framework, but individual tax outcomes can vary.

Before making a property investment decision, consider speaking with both a qualified tax professional and a mortgage broker.

For help understanding your property finance options, visit Naga Mortgage Brokers at:

https://ntmortgagebrokers.com.au/

Disclaimer: This article provides general information only and should not be considered personal financial, tax or legal advice. Tax rules and proposed legislation can change. Investors should obtain professional advice based on their individual circumstances.