What the Proposed Negative Gearing Changes Could Mean for Property Investors

Property investors were in the Federal Budget spotlight this year, with the Government announcing proposed changes to negative gearing designed to support housing affordability and encourage investment in new housing supply.

While existing property owners are largely protected under grandfathering provisions, the proposed reforms could significantly influence future investment decisions, particularly for those considering purchasing residential property after Budget Night.

Although these measures are not yet law, understanding how they may apply is important for anyone building or reviewing a long-term property investment strategy.

What Was Announced?

The Government has proposed significant changes to the way negative gearing operates for residential investment properties from 1 July 2027.

Under the current rules, when the costs of owning an investment property exceed the income it generates, the resulting tax loss can generally be offset against other forms of taxable income, such as salary, wages or business income.

Under the proposed reforms, this treatment would be restricted for certain residential properties.

How Would the New Rules Work?

From 1 July 2027, losses from established residential properties acquired after 7.30pm (AEST) on 12 May 2026 would no longer be able to reduce other taxable income.

Instead, those losses could only be used to offset:

• Rental income from residential properties
• Capital gains arising from residential property investments

Any excess losses would be carried forward and applied against future residential property income or gains.

Importantly, the changes are proposed to apply only to residential investment properties.

Who Is Exempt?

Existing Property Owners

If you owned a residential investment property before 7.30pm on 12 May 2026, the current negative gearing rules would continue to apply.

The grandfathering provisions are also expected to apply where a contract was entered into before Budget Night, even if settlement occurs at a later date.

New Residential Construction

The Government has indicated that qualifying new residential properties will continue to receive full negative gearing benefits.

This is intended to encourage additional housing supply and may increase the relative attractiveness of new developments compared with established dwellings.

Further detail on the precise definition of a qualifying new build is expected as legislation develops.

Certain Investment Structures

The proposed changes would not apply to:

• Superannuation funds
• Widely held trusts

Advisor Insight: A Shift Towards Investment Fundamentals

Negative gearing has traditionally provided a tax benefit that can help improve after-tax cashflow during the early years of property ownership.

If these reforms proceed, future investors may place greater emphasis on investment fundamentals such as:

• Rental yield
• Affordability and cashflow
• Long-term capital growth potential
• Asset quality and location

The proposed rules may also encourage greater consideration of new residential developments where the existing concessions remain available.

While tax outcomes remain an important consideration, successful investment decisions are rarely driven by tax alone.

Questions Worth Considering

If you're considering property investment in the coming years, it may be worthwhile asking:

• Are you planning to purchase an investment property after 1 July 2027?
• Would a new build suit your investment objectives?
• How reliant is your current strategy on negative gearing benefits?
• Have you reviewed the cashflow position of your existing investment portfolio?
• Are there alternative ownership structures that should be considered?

What Happens Next?

At this stage, these measures are proposals only.

The Government's announcements will still need to progress through the legislative process and details may change before any final laws are enacted.

For this reason, we do not recommend making major investment decisions based solely on the Budget announcement. However, it is sensible to understand the direction of travel and consider how the changes could affect future opportunities.

Need Advice?

Property investment decisions should always be assessed in the context of your broader financial goals, cashflow requirements and long-term wealth strategy.

If you would like to discuss how the proposed negative gearing changes may affect your circumstances, please contact your trusted Murray Nankivell adviser.