Negative gearing changes for residential property investors

Opening summary

The Government has announced changes that would limit negative gearing for residential property investments to new builds from 1 July 2027. Existing arrangements are expected to continue for residential properties held before the Budget announcement time of 7:30 pm AEST on 12 May 2026.

The rules are directed at residential property. Commercial property and other asset classes, such as shares, are expected to remain subject to existing negative gearing arrangements.

This update is relevant to clients who own residential investment property, are considering buying residential investment property, or hold property through a company, trust or partnership structure.

It is particularly relevant where a client is considering buying an established residential property after Budget night, or is comparing an established dwelling with a new build.

For residential properties held before Budget night, the current negative gearing treatment is expected to continue while the property is held.

For established residential property acquired after Budget night, losses are proposed to be deductible only against other income from residential properties, including relevant residential property capital gains. Excess losses may be carried forward to future years, but would not be available to reduce unrelated income such as salary and wages.

New builds are expected to be treated differently. Investors who acquire eligible new builds may continue to negatively gear those properties, including after 1 July 2027. This distinction means the acquisition date and the type of property will be critical.

Residential property investors should keep clear records of acquisition dates, contract dates, and settlement details. If a property was held before Budget night, those records may be important in confirming grandfathering treatment.

Clients considering a future purchase should model the after-tax cash flow under the proposed rules, rather than assuming rental losses will be available to offset salary, business, or investment income. Clients should also consider non-tax issues, including borrowing capacity, interest rate sensitivity, rental yield, land tax, and long-term investment objectives.

The final rules will depend on enacted legislation and any ATO guidance. Clients should seek advice before entering into contracts or making structural decisions based on the proposed changes.

If you own or are considering buying residential investment property, please contact us before making decisions based on the proposed negative gearing changes.