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Negative gearing has shaped Australian property investing for decades — and in 2026 the rules changed. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, enacted on 26 June 2026, rewrote how losses on some residential investment properties are treated, alongside a significant change to capital gains tax. This article explains what negative gearing is, what the new law does in general terms, and — most importantly for our readers — what it may mean for how you think about an investment loan. Two things before we start: the rules are new, the details matter, and this is general information only, not tax advice. Everything here is stated as at July 2026; confirm the current position on the ATO website and with a registered tax agent before acting.
A property is negatively geared when the costs of holding it — loan interest, rates, insurance, agent fees, maintenance and other deductible expenses — exceed the rental income it produces. The result is a loss. Historically, Australian tax law allowed that loss to be deducted against the investor's other income, including salary, reducing their overall tax bill. The strategy accepted a yearly cash-flow loss in exchange for a tax benefit along the way and, the investor hoped, a capital gain at the end.
Gearing itself is just borrowing to invest. A positively geared property (rent exceeds costs) adds to your income; a negatively geared one costs you money each year. The tax treatment of the loss is what the 2026 reform changed — for some properties.
In general terms, and as at July 2026, the new law works like this: from the 2027-28 income year, losses on established residential investment properties purchased after 7:30pm AEST on 12 May 2026 are quarantined. A quarantined loss can generally only be deducted against other residential-property income — including rental income from such properties and capital gains made on them — not against salary or other income.
The loss is not extinguished; it is redirected. But for an investor whose plan relied on offsetting a rental loss against wages each year, the cash-flow picture of a newly purchased established property may now look quite different. Whether and how quarantining applies to a particular purchase is a question for a registered tax agent — the legislation has definitions and edge cases this article does not attempt to cover.
Properties already held at the announcement — 7:30pm AEST, 12 May 2026 — are grandfathered: they generally keep the old negative gearing treatment for as long as the owner holds them. Sell, and the grandfathering does not travel with the property to the next buyer. This creates a genuine new consideration for existing investors weighing whether to sell and re-buy, restructure ownership, or hold — decisions that now carry tax consequences that did not exist before, and that need professional advice.
The quarantining rules are aimed at established dwellings. As at July 2026, negative gearing against all income — salary included — generally continues to be available for:
The stated policy intent is to steer investment toward adding housing supply. For borrowers, it means the choice between an established property and a new build now has a tax dimension it did not have before — more on that below.
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The same Act changed capital gains tax. From 1 July 2027, the 50 per cent CGT discount for individuals and trusts is replaced by cost-base indexation — adjusting the cost base for inflation, so only real gains are taxed. Gains accruing before that date generally keep the discount treatment, and the additional discount of up to 60 per cent for eligible affordable housing investments remains. How the transition applies to an asset you already own, or one you buy now, is exactly the kind of question a registered tax agent should answer with the legislation in front of them — again, the ATO publishes guidance on the reform.
We are a mortgage broking firm, not tax advisers, so we will stay in our lane: what changes about the borrowing decision.
None of this makes property investment better or worse in itself. It changes where the return has to come from: more weight on rent covering costs and on the quality of the asset, less on the tax system subsidising a yearly loss.
We can help you understand what a lender will approve, what the repayments look like under realistic and stressed rates, and how to structure the borrowing cleanly — and we will tell you plainly when a question belongs with your accountant instead. Get in touch to talk through the finance side of your next purchase, or read our investment property loans guide first.
This article is general information only, current as at July 2026, and is not financial or tax advice. The 2026 reforms are new and guidance is still developing — confirm how the rules apply to you with the ATO and a registered tax agent before making decisions.
No. As at July 2026, negative gearing continues for properties held before the 12 May 2026 announcement (grandfathered until sold) and for new builds, build-to-rent and social or affordable housing. What changed is that losses on established residential properties purchased after 7:30pm AEST on 12 May 2026 are quarantined from the 2027-28 income year — generally deductible only against residential-property income, not salary. Confirm the details with the ATO and a registered tax agent.
Properties held at the 12 May 2026 announcement are generally grandfathered, keeping the old treatment while you continue to hold them. The grandfathering ends when you sell, and it does not transfer to the buyer. Decisions about selling, restructuring or transferring ownership now carry tax consequences that deserve advice from a registered tax agent.
Generally no. A quarantined loss can typically be carried forward and deducted against other residential-property income, including rental profits and capital gains on such property. What it generally cannot do, for affected properties, is reduce tax on your salary each year — which changes the cash-flow picture while you hold the property.
Lenders assess serviceability on your income, expenses and debts with a buffer — the negative gearing rules do not directly change that formula. Some lenders have historically given partial credit for negative gearing tax benefits in their calculators, and lender policies may evolve with the new rules, so treat the tax change as one more reason to check current policy through a broker.
New builds, build-to-rent and social or affordable housing generally remain eligible for negative gearing against all income under the 2026 reform, while post-May-2026 purchases of established dwellings face loss quarantining. Whether that makes a new build better for you depends on your whole position — price, rent, quality, risk and the CGT changes — and is a question for a registered tax agent or financial adviser.
From 1 July 2027, the 50 per cent CGT discount for individuals and trusts is replaced by cost-base indexation, which adjusts your cost base for inflation so only real gains are taxed. Gains accruing before that date generally keep the discount treatment, and the up-to-60 per cent discount for eligible affordable housing remains. The ATO publishes guidance on how the transition works.
This article is general information only and doesn't consider your personal objectives, financial situation or needs — it isn't personal credit advice, and lending criteria, rates, fees and government schemes change. Before acting, speak with a licensed MakeMyLoan broker or credit representative who will assess your circumstances and provide a credit guide before any credit assistance is given.
