23/05/2026
Understanding the Budget "Changes" to Negative Gearing
Yes, the rules changed from 12 May 2026, but negative gearing did not disappear, its different. Let me explain...
The ability to claim losses from an investment property still exists. What has changed is how and when those losses can be used.
Previously, if your investment property held in individual ownership made a loss, you could often offset that loss directly against your salary or wages in the same financial year and receive an immediate tax refund.
That immediate refund has now been restricted for many established residential properties purchased after 12 May 2026, but the losses themselves are not gone. They can still be carried forward and used later against future profits from that property, just like many business losses are treated.
This means if your property runs at a loss in the early years, those losses accumulate and can be used in future years when the property becomes positively geared.
So the tax benefit has not disappeared. In many cases, it has simply been deferred and being treated as it would be for any other business enterprise.
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A Simple example -
Say you purchase a $600,000 investment property.
The rent is 4.5%, giving you $27,000 per year.
Your loan is 90% LVR at 6% interest costing $32,400 in interest.
This means -
Rental income = $27,000
Interest = $32,400
Rates, insurance and management = $5,000
Total expenses = $37,400
This leaves a loss of $10,400 per year.
Under the old arrangement, if you were on a 35% tax bracket, that loss could potentially reduce your tax and give you roughly $3,640 back at tax time.
That immediate refund will no longer apply in the same way, but that $10,400 loss is still recorded, carries forward and accumulate year after year.
Now imagine five years later -
The property value has grown.
The rent has increased.
The loan has been refinanced.
Your LVR has dropped.
Your cash flow improves.
Suddenly that same property starts making a profit.
That’s when those carried-forward losses begin to offset those profits.
So instead of paying tax on the profit, your previous losses reduce the taxable income and effectively, the tax benefit returns later.
This is why understanding long-term property strategy matters.
Too many people focus only on what the tax refund looks like today.
The real wealth in property has never come from negative gearing. It comes from buying the right asset in the right area, using the right strategy, and holding it long enough for the market to do the heavy lifting.
This change does not destroy investing. It simply rewards smarter investors who understand long-term growth instead of relying on annual tax refunds.
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Other IMPORTANT facts and considerations -
- Nothing has changed to your weekly cashflow.
- The property still costs what it costs to hold.
- The main change is that the tax refund may no longer arrive immediately, but later when the property begins producing profit.
- A larger deposit can reduce negative gearing from day one.
- Higher-yield properties become more attractive.
- Co-living and rooming houses become even more compelling.
- Commercial property is not impacted by this change.
- SMSF investment properties are also not impacted.
- Don't forget, the government can change and this may also go away in two years time (as happened in 1985 and 1987). You don't want to be the one scratching your head at that time having missed hundreds of thousands in capital growth because you couldn't claim a couple of thousands in tax refund.
Fee free to shoot any questions that you may have around this.
The above is general advice only, not financial advice. For Financial advice you will need to discuss your personal circumstances with a qualified Financial Adviser or your Accountant.
