Property investing guide - Updated June 2026
Negative gearing in Australia: a plain-English guide
Negative gearing gets more airtime than almost any other property investment concept in Australia. Politicians argue about it. Economists write papers. Most investors can name it but cannot explain it. Here is what it actually is.
12 min read
General information only
2026 tax law update
Now legislated
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed Parliament on 25–26 June 2026 and is now law. Negative gearing is limited to new residential builds from 1 July 2027. The 50% CGT discount is replaced with cost-base indexation and a 30% minimum tax on capital gains accruing after 1 July 2027. This article reflects the law as enacted. Confirm how it applies to your situation with a registered tax agent.
What it actually is, how expenses and income interact, what the tax treatment means in practice, and what the 2026 law changes mean for buyers of new and established property. That is what this guide covers.
General information only. This article explains the concept, not your situation. The 2026 tax changes are now law. Confirm current rules and how they apply to you with a registered tax agent before acting.
What is negative gearing?
A property is negatively geared when it costs more to own than it earns. Rent coming in is less than expenses going out. The property runs at a loss.
Those expenses include loan interest, property management fees, council rates, insurance, maintenance, and depreciation. When those costs exceed the annual rent, the shortfall is the loss.
Under tax law, that loss can be offset against other income, including wages, reducing the tax you owe that year. That is the tax benefit people talk about. From 1 July 2027, this offset no longer applies to established properties purchased after 12 May 2026. The details are in the 2026 changes section below.
Where does the term come from?
"Gearing" means borrowing to invest. Positive gearing: the investment earns more than it costs. Negative gearing: it costs more than it earns. Neither is inherently better or worse. The right position depends on income, goals, and how much cash you can comfortably commit.
How rental income and expenses interact
Every investment property has two sides: rent coming in and costs going out. The gap between them determines whether the property is positively geared, negatively geared, or somewhere between.
What can generally be claimed as a deduction
The ATO's rental properties guide sets out what can be deducted and how. The general rule: costs directly related to producing rental income are deductible in the year they are incurred. Costs that improve the property are treated as capital and deducted differently over time.
Loan interest
On your investment mortgage. Not principal repayments.
Property management fees
Finding tenants and day-to-day management.
Council rates and water
Charges levied on the property.
Landlord and building insurance
Cover held while the property is let.
Maintenance and repairs
Work that restores original condition. Improvements are treated differently.
Depreciation
On the building and eligible assets within it.
Worth knowing
Repairs vs improvements
Repairs restore something to its original condition. Generally deductible in the year the work is done. Improvements add value or extend the property beyond its original state. Treated as capital works, deducted over a longer timeframe. The line between the two is often contested. Ask your tax agent before assuming.
A worked example
These numbers are illustrative only. Not a projection or estimate of typical outcomes.
Before 1 July 2027, that $9,500 loss could reduce taxable income for any investor. From 1 July 2027, an investor who bought this property after 12 May 2026 can no longer offset that loss against wages. The real holding cost is higher. Outcomes depend on income, tax rate, and the property's specific numbers.
Positive, negative, and neutral
Positive cashflow
Rent exceeds costs. You receive net income each month before factoring in capital growth. Higher-demand markets rarely start this way for investors.
Negative cashflow
Costs exceed rent. You cover the shortfall from your own income each year. Investors accept this when they expect long-term capital growth to outweigh the accumulated shortfall. The tax offset helped make that maths work — from 1 July 2027 it no longer applies to established property bought after Budget night.
Neutral cashflow
Rent broadly equals costs. No surplus, no shortfall. Often a transitional position as rents rise or loan interest rates fall.
The right position depends on income, other commitments, investment timeline, and goals. A financial adviser can model how different scenarios interact with your situation.
The tax side
Rental losses from a negatively geared property can generally be offset against other income in the same financial year. If you earn a salary and the property runs at a loss, you may reduce your taxable income by the amount of that loss. From 1 July 2027, this applies only to new builds for properties purchased after 12 May 2026.
Marginal tax rates matter
Australia uses a progressive tax system. The higher your income, the higher the rate on the top slice. A rental loss reduces taxable income at that marginal rate. Someone on 45 cents in the dollar saves more tax from the same loss than someone on 32.5 cents.
The property is still not free. You are out of pocket by the after-tax cost of the shortfall. The tax benefit reduces the loss. It does not eliminate it.
What the ATO generally requires
The ATO's rental properties guide sets out the conditions in full. In summary:
Expenses must genuinely relate to producing rental income
The property must be available for rent at a market rate
Private use reduces the claimable proportion of expenses
Capital improvements are generally not immediately deductible
Losses that cannot be used in one year carry forward
A tax benefit that offsets 30 cents of a bad investment is still a bad investment.
Why new property and negative gearing go together
New builds produce significantly higher depreciation deductions than older properties. Every depreciable element starts at full value. In the early years, this creates deductions that established properties cannot match.
Depreciation is claimed through a schedule prepared by a registered quantity surveyor. The schedule cost is generally tax-deductible. For most new builds, it pays for itself quickly.
Division 43
The building itself
The slab, walls, roof, and internal construction. For residential buildings constructed after September 1987, the deduction is 2.5% of the original construction cost per year over 40 years.
Division 40
Fixtures and fittings
Removable items: appliances, carpet, blinds, hot water systems. They depreciate faster because their useful lives are shorter. A 2017 rule change blocked Division 40 claims for second-hand purchases. New builds are unaffected — confirm the current position with a quantity surveyor.
How depreciation amplifies the tax position
Depreciation reduces taxable income without costing anything in cash. It is an accounting deduction. Because of this, a new-build investor's accounting loss is typically larger than their real cash shortfall. Bigger tax offset. Same real out-of-pocket cost.
New builds retain full negative gearing and full access to depreciation under the 2026 law. The depreciation rules for new builds are unchanged.
The 2026 tax changes: now law
From 1 July 2027, negative gearing is limited to new residential builds. Buy an established property after 12 May 2026 and rental losses can no longer reduce wages. Where you land depends on when you bought and what you bought.
12 May 2026
Announced on Budget night, 7:30 pm
28 May 2026
Introduced to Parliament
26 June 2026
Enacted — now law
1 July 2027
New rules take effect
What "quarantined losses" actually means
What you cannot do from 1 July 2027 is deduct it from wages. That is the meaningful change for investors who bought established property after Budget night.
New builds are exempt
Buy a newly constructed property after Budget night, and you keep full negative gearing. Losses still offset wages. CGT discount options still apply. This is explicit government policy: tax support directed toward new housing supply rather than competition for existing homes. The full Budget rationale is on budget.gov.au.
What this means for the Oli Property model
Oli Property focuses on new-build investment. Under the law as enacted, investors who take that path retain full negative gearing, unchanged. If you are weighing new versus established, the tax difference is now material and measurable. Confirm how it applies to your situation with a registered tax agent.
The "new build" definition: still being set
The exact definition of "new residential dwelling" for negative gearing purposes will be set by ministerial legislative instrument, not the Act itself. The government has indicated a property must genuinely add to housing supply. A single dwelling demolished and rebuilt as a single dwelling likely will not qualify. Two separately titled duplexes likely will. Confirm a specific property's eligibility with a tax agent once the instrument is published.
The CGT changes
The 50% capital gains tax discount is replaced, from 1 July 2027, by a cost-base indexation model and a minimum 30% tax on gains. For properties held before Budget night, the 50% discount continues to apply to gains accrued up to 1 July 2027. Gains that accrue after that date are subject to the new rules. In low-inflation periods, this can produce a larger tax bill at sale.
New-build investors can choose between the old 50% discount and the new arrangement when they sell, whichever yields the better outcome. Refer to the ATO's CGT guidance for more detail. The interaction between accumulated losses, the transitional provisions, and your individual tax position is genuinely complex. Get specific advice before making any assumptions about what you will owe at sale.
The SMSF change
The Greens negotiated a ban on new limited recourse borrowing arrangements (LRBAs) for residential property in self-managed super funds as a condition of passing the bill. The ban applies 45 days after royal assent. Existing SMSF loans and contracts are grandfathered. If you hold or are planning an SMSF residential property strategy, speak with a specialist SMSF adviser immediately. The rules have changed.
Joint ownership and the "widow's tax" issue
Under the law as enacted, jointly owned investment properties could lose their grandfathered negative gearing and CGT exemptions if a co-owner dies or the property is transferred in a divorce. The government has acknowledged this as an unintended consequence and committed to fixing it in a second tranche of legislation, expected later in 2026. If you hold investment property jointly, confirm the current status with a tax agent before making any decisions.
Questions about the law changes
For negative gearing: no. Properties held at 7:30 pm on 12 May 2026 are fully grandfathered, and existing rules continue unchanged. For CGT: partially. The 50% discount continues on gains accrued before 1 July 2027. Gains accruing after that date are subject to the new indexation method and 30% minimum tax, even for pre-Budget properties. This applies to all investors, not just those who bought after Budget night.
Yes. The legislation grandfathers properties under contract before 7:30 pm on 12 May 2026, even where settlement had not yet occurred. Confirm your specific situation with a registered tax agent.
The exact definition has not yet been published. It will be set in a ministerial legislative instrument. The government's guidance suggests a property must genuinely add to housing supply. Confirm with a tax agent whether a specific property qualifies once the instrument is available.
If you are setting up a new LRBA for residential property in an SMSF, the ban applies 45 days after royal assent. Existing facilities and contracts are grandfathered. Speak with an SMSF adviser to confirm your position.
Risks worth understanding
Negative gearing is not a strategy by itself. The tax treatment is one feature. The risks below are what trip investors up most often. None of this is advice on whether any of this suits your situation.
01
Capital growth is not a given
The model depends on the property increasing in value over time. If it does not, the accumulated cash shortfall is a loss with no upside. Capital growth is never guaranteed. Investors who skip proper research and assume it will arrive are taking on real risk.
02
Tax laws do change
The 2026 overhaul is the clearest example in a generation. A strategy that offsets rental losses against wages no longer works for established properties bought after Budget night. Reviewing your approach with a tax agent when rules shift is not optional.
03
Vacancies hurt more than expected
If the property is empty, costs continue. Rates, insurance, and loan interest do not stop because there is no tenant. A prolonged vacancy pushes the real shortfall well beyond projections. Strong rental demand in the location is the best protection.
04
Rate rises expand the gap
Loan interest is typically the highest single cost for a negatively geared property. When rates rise, the shortfall grows. For established property investors under the new rules, that shortfall can no longer be offset against wages. The rate-rise impact is compounded. Budget accordingly.
05
The ongoing cash commitment
Every year the property is negatively geared, you write a cheque to cover the shortfall. That affects your borrowing capacity, your monthly budget, and your ability to absorb unexpected costs. Model the realistic holding cost before you commit, across a range of rate scenarios, not just the current one.
Where negative gearing fits in a longer strategy
Negative gearing is one feature of a property investment, not the reason to buy. The strategy is the whole picture: the property, the location, the hold period, the financing, and what you are trying to achieve.
The long-term logic
Investors in a negative cashflow position are betting that long-term capital growth outweighs the accumulated shortfall. Whether that pays off depends on the property decision, not the tax position. New and established property now carry materially different tax profiles. That is a real factor in property selection.
Where Oli Property fits
Oli Property works with investors on new-build property in high-growth corridors. New builds retain full access to negative gearing and depreciation under the law as enacted. How Oli Property approaches property selection is on the website.
Common questions
For definitions of key terms, the property investment glossary is a good starting point.
No. It applies to other income-producing assets including shares and managed funds. This guide focuses on property.
No. Investment property deductions do not apply to a principal place of residence.
No. A tax offset reduces the holding cost. It does not fix a property with poor fundamentals. The location, the demand, the price matter far more than the tax position.
Carried-forward rental losses can generally reduce a capital gain at the time of sale. The interaction between accumulated losses and CGT is complex. The ATO explains the general treatment, but get specific advice before assuming any outcome.
Depends on how your tax is structured. If your employer withholds tax on your salary and a rental loss reduces your total taxable income, you may receive a refund at tax time. You can also apply to the ATO for a PAYG withholding variation, which adjusts the amount withheld throughout the year rather than waiting for a lump refund.
For negative gearing: no. Properties held before 7:30 pm on 12 May 2026 are grandfathered. Existing rules remain in effect indefinitely while you hold them. For CGT: gains accruing after 1 July 2027 are subject to the new indexation method and 30% minimum tax, even for pre-Budget properties. Confirm your specific position with a registered tax agent.
No. It is a legal, well-established part of the Australian tax system.
What to do next
The 2026 law changes have made new and established property meaningfully different from a tax perspective. For investors who already own property, negative gearing continues unchanged for as long as they hold it. For those planning their next purchase, the new-build tax advantage is now written into law.
Oli Property focuses on new-build investment in high-growth corridors. Full negative gearing access. Full depreciation. That is the model.
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