NEGATIVE GEARING (NG) Reform
2026–27 AUsTRALIAN TAX REFORM
What is Negative Gearing?
Negative gearing is a common tax strategy occurs when you purchase an investment asset (usually a property) with borrowed money (financial leverage), and the ongoing cost of holding and running that investment outweighs the income it generates.
For example, owning an investment property involves annual expenses such as mortgage interest, council rates, water rates, property management fees, insurance, and ongoing maintenance etc. If these cumulative annual costs exceed the gross rental income you earn, the investment is running a net loss. This net-loss position is what the industry refers to as being “negatively geared.”
Individual taxpayers can apply this net rental loss to offset their broader taxable income such as salary and wages, thereby reducing their total taxable income and lowering the amount of income tax payable to the Australian Taxation Office (ATO).
What is the Change?
The rules surrounding negative gearing are undergoing a major structural change following the 2026/27 Federal Budget. For established residential properties, the impact depends on your purchase timeline:
1. Purchased before 7:30 pm AEST on 12 May 2026
Fully Grandfathered: No change applies. You can continue to use negative gearing to offset your net rental losses against your other taxable income (like salary or wages).
Click here to view the example case 1
2. Purchased after 7:30 pm AEST on 12 May 2026
If you signed a purchase contract for an established residential property after the budget announcement cut-off, the new rules will apply to you in two phases:
2.1. The Transition Period (Up until 30 June 2027):
Temporarily continue to use negative gearing. Net rental losses can still be used to offset your broader taxable income such as salary and wages up until 30 June 2027.
2.2. The New Era (From 1 July 2027 onwards):
Net rental losses will be quarantined into a dedicated pool. You can carry these losses forward indefinitely to:
● Offset future net rental profit from residential properties, or
● Reduce your capital gains tax (CGT) liability when you eventually sell the property.
Click here to view the example case 2
New build exemption
Eligible “New Builds” purchased by the first owner are exempt from these changes and retain negative gearing benefits indefinitely.
A new build refers to a residential property that contributes to a genuine increase in overall housing supply.
Inclusions:
– dwellings (homes) built on previously vacant land, or
– sites on which existing properties are demolished and subsequently redeveloped with an “increased” number of dwellings.
A property is treated as a new build if it has never been previously sold. The only exception applies where the builder initially owned the property, provided it was not occupied for longer than 12 months before its first sale. The new buyer (second owner) is also qualified for the new‑build exemption when selling the property in the future. Any subsequent buyer will be affected by the new rule.
Negative Gearing Reform Impact
| Investments Affected | Investments Not Affected |
| ● Established residential properties where the purchase contract was signed after 7:30 pm AEST on 12 May 2026. ● Second or subsequent purchasers of previously eligible ‘New Build’ residential properties. (Once a brand-new home is resold, it loses its “new build” status and is treated as an established property). ● Non-supply-increasing renovations or extensions to existing residential properties (e.g., adding extra bedrooms to an existing house, or replacing one single home with another single home). ● Affected residential properties owned by entities (individuals, partnerships, companies, or most discretionary trusts). For companies and trusts, losses cannot offset general trading or business income. | ● Any residential property with a purchase contract signed before 7:30pm AEST on 12 May 2026 (Grandfathered). ● Eligible ‘New Build’ residential properties ● Commercial properties, industrial properties, and retail premises. ● Shares, bonds, managed funds, and other non-residential investment assets. ● Properties held in superannuation funds (including SMSFs), or widely-held trusts like Managed Investment Trusts (MITs). ● Approved government social housing or eligible community affordable housing programs. ● Your primary place of residence (main residence). |
negative gearing (ng) CASE STUDIES
2026–27 ng BUDGET MEASURES
CASE 1: Established residential properties purchased before 7:30 pm AEST on 12 May 2026
● Financial year: 2027/2028
● Mia is an Australian resident for tax purposes who earns A$190,000 in salary and wages.
● She owns an established residential investment property in her personal name.
● Property purchase date: 1 May 2023
● Annual gross rental income: A$28,000
● Annual rental expenses: mortgage interest A$38,000, council rates A$2,400, water rates A$1,200, property management fees A$1,680, building insurance A$1,800, and repairs and maintenance A$3,320.
● Australian resident tax rates 2025 – 2028
| Taxable income thresholds (A$) | 2025-2026 income year | 2026-2027 income year (provisional) | 2027-2028 income year (provisional) |
| 0 – 18,200 | Tax – free | Tax – free | Tax – free |
| 18,201 – 45,000 | 16% | 15% | 14% |
| 45,001 – 135,000 | 30% | 30% | 30% |
| 135,001 – 190,000 | 37% | 37% | 37% |
| 190,001 and over | 45% | 45% | 45% |
| Full Medicare levy = 2% of taxable income | |||
Source: Tax rates – Australian resident | Australian Taxation Office
CASE 1 ANALYSIS: How does negative gearing affect Mia’s taxable income and total income tax payable?
| Without Negative Gearing | With Negative Gearing |
| Taxable income = A$190,000 Income Tax = A$18,200 × 0% + (A$45,000 – A$18,200) × 14% + (A$135,000 − A$45,000) × 30% + (A$190,000 − A$135,000) × 37% = A$51,102 Medicare levy = A$190,000 × 2% = A$3,800 Total Tax Payable = A$51,102 + A$3,800 = A$54,902 | Step 1: Net Rental Loss Calculation Total allowable rental deductions = A$38,000 + A$2,400 + A$1,200 + A$1,680 + A$1,800 + A$3,320 = A$48,400 Net rental loss = Rental income − Total allowable rental deductions = A$28,000 − A$48,400 = −A$20,400 Step 2: Taxable Income Calculation Salary and wages: A$190,000 Less net rental loss: −A$20,400 Taxable income = A$190,000 − A$20,400 = A$169,600 Step 3. Mia’s Income Tax & Medicare Levy Breakdown Income tax = A$18,200 × 0% + (A$45,000 – A$18,200) ×14% + (A$135,000 − A$45,000) × 30% + (A$169,600 − A$135,000) × 37%= A$43,554 Medicare levy = A$169,600 × 2% = A$3,392 Total Tax Payable = A$43,554 + A$3,392 = A$46,946 |
| Mia’s rental property was purchased before 7:30 pm AEST on 12 May 2026, meaning it is fully grandfathered. Therefore, Mia can continue to use her 2027/2028 net rental loss to offset her salary and wages income. Total Tax saved from negative gearing = A$54,902 – A$46,946 = A$7,956 or (A$190,000 – A$169,600) × (37% + 2%) =A$7,956 | |
CASE 2: Established residential properties purchased after 7:30 pm AEST on 12 May 2026. Net rental losses quarantine into a dedicated pool to offset future net rental profit and capital gains tax (CGT).
● Financial Year: 2028/2029
● Mia’s annual salary and wages (Assume Mia’s 2027FY-2029FY salary and wages stay the same) = A$190,000
● Property purchase date: 1 July 2026
● Purchase cost = A$1,000,000 (including settlement price and stamp duty)
● Gross rental income 2028/2029 = A$41,000
● Deductible rental expenses 2028/2029 = A$30,000
● Net rental loss 2026/2027 = A$30,000; Net rental loss 2027/2028 = A$20,400 (Carried forward from Case 1)
● Property disposal (sale) date: 30 June 2029
● Sale price = A$1,200,000
● Property value on 1 July 2027 (cost base) = A$1,100,000
(determined by the ATO tool or an independent property valuer)
● Assume the 2028/2029 marginal tax rates remain the same as in 2027/2028.
● Annual inflation projection = 2.5%
(click to view the latest RBA inflation forecast)
| Taxable income thresholds (A$) | 2025-2026 income year | 2026-2027 income year (provisional) | 2027-2028 income year (provisional) |
| 0 – 18,200 | Tax – free | Tax – free | Tax – free |
| 18,201 – 45,000 | 16% | 15% | 14% |
| 45,001 – 135,000 | 30% | 30% | 30% |
| 135,001 – 190,000 | 37% | 37% | 37% |
| 190,001 and over | 45% | 45% | 45% |
| Full Medicare levy = 2% of taxable income | |||
Source: Tax rates – Australian resident | Australian Taxation Office
CASE 2 ANALYSIS: To what extent does the negative gearing reform affect Mia’s total tax payable?
| Negative Gearing & CGT (Old Rule) Mia’s Tax Payable amount from 2027FY-2029FY using Old Rule ● 2026/2027 Tax Payable Taxable income = Salary and wages – Net rental loss 2026/2027 = A$190,000 – A$30,000 = A$160,000 Income tax = A$18,200 × 0% + (A$45,000 – A$18,200) × 15% + (A$135,000 – A$45,000) × 30% + (A$160,000 – A$135,000) × 37% = A$40,270 Medicare levy = A$160,000 × 2% = A$3,200 Total Tax Payable = A$40,270 + A$3,200 = A$43,470 ● 2027/2028 Tax Payable Taxable income = Salary and wages – Net rental loss 2027/2028 = A$190,000 − A$20,400 = A$169,600 Income tax = A$18,200 × 0% + (A$45,000 – A$18,200) ×14% + (A$135,000 − A$45,000) × 30% + (A$169,600 − A$135,000) ×37% = A$43,554 Medicare levy = A$169,600 × 2% = A$3,392 Total Tax Payable = A$43,554 + A$3,392 = A$46,946 ● 2028/2029 Tax Payable Net rental profit 2028/2029 = Gross rental income – Deductible rental expenses = A$41,000 – A$30,000 = A$11,000 Capital gain on disposal (sale) = Sale price – Purchase cost on 1 July 2026 = A$1,200,000 – A$1,000,000 = A$200,000 Taxable capital gain = Capital gain on disposal (sale) × (1 – 50% CGT discount) = A$200,000 × (1 – 50%) = A$100,000 Taxable income = Salary and wages + Net rental profit + Taxable capital gain = A$190,000 + A$11,000 + A$100,000 = A$301,000 Income tax = A$18,200 × 0% + (A$45,000 – A$18,200) ×14% + (A$135,000 − A$45,000) × 30% + (A$190,000 − A$135,000) × 37% + (A$301,000 − A$190,000) ×45% = A$101,052 Medicare levy = A$301,000 × 2% = A$6,020 Total Tax Payable = A$101,052 + A$6,020 = A$107,072 |
| Negative Gearing & CGT (New Rule) Mia’s Tax Payable amount from 2027FY-2029FY using New Rule ● 2026/2027 (Transition Period) Tax Payable Taxable income = Salary and wages – Net rental loss 2026/2027 = A$190,000 – A$30,000 = A$160,000 Income tax = A$18,200 × 0% + (A$45,000 – A$18,200) ×15% + (A$135,000 − A$45,000) × 30% + (A$160,000 − A$135,000) ×37% = A$40,270 Medicare levy = A$160,000 × 2% = A$3,200 Total Tax Payable = A$40,270 + A$3,200 = A$43,470 ● 2027/2028 Tax Payable Taxable income = A$190,000 (Salary and wages) Income tax = A$18,200 × 0% + (A$45,000 – A$18,200) ×14% + (A$135,000 − A$45,000) × 30% + (A$190,000 − A$135,000) × 37%= A$51,102 Medicare levy = A$190,000 × 2% = A$3,800 Total Tax Payable = A$51,102 + A$3,800 = A$54,902 Net rental loss pool balance = A$20,400 ● 2028/2029 Tax Payable Step 1: Apply carried forward loss to 2028/2029 net rental profit Net rental profit 2028/2029 = Gross rental income – Deductible rental expenses = A$41,000 – A$30,000 = A$11,000 Apply A$11,000 from the loss pool to bring net rental profit to A$0. Net rental loss pool balance = A$20,400 – A$11,000 = A$9,400 ● Step 2: Capital gain calculation Capital gain accrued before 1 July 2027 = Property value on 1 July 2027 – Purchase cost = A$1,100,000 – A$1,000,000 = A$100,000 Taxable capital gain accrued before 1 July 2027 = Capital gain × (1 – 50% CGT discount) = A$100,000 × (1 – 50%) = A$50,000 Capital gain accrued after 1 July 2027: Holding period since 1 July 2027 = 2 years Inflation‑adjusted cost to 1 July 2029 = Property value on 1 July 2027 × (1+inflation)2 = A$1,100,000 × (1+2.5%)2 = A$1,155,688 Capital gain accrued after 1 July 2027 = Sale price – Inflation‑adjusted cost = A$1,200,000 – A$1,155,688 = A$44,312 Apply the net rental loss pool balance of $9,400 to partially offset the taxable capital gain. Total Capital Gain = A$50,000 + A$44,312 – A$9,400 = A$84,912 ● Step 3: Calculate tax on taxable income Taxable income = A$190,000 + A$84,912= A$274,912 Income tax = A$18,200 × 0% + (A$45,000 – A$18,200) ×14% + (A$135,000 − A$45,000) × 30% + (A$190,000 − A$135,000) × 37% + (A$274,912 − A$190,000) × 45% = A$89,312 Medicare levy = A$274,912 × 2% = A$5,498 Total Tax Payable = A$89,312 + A$5,498 = A$94,810 |
| Total Tax Payable Under the Old Rule | Total Tax Payable Under the New Rule | ||
| 2026/2027 | A$43,470 | 2026/2027 | A$43,470 |
| 2027/2028 | A$46,946 | 2027/2028 | A$54,902 |
| 2028/2029 | A$107,072 | 2028/2029 | A$94,810 |
| Total | A$197,488 | Total | A$193,182 |
| Impact: A$197,488 – A$193,182 = A$4,306 Overall, the new rule results in a total tax saving of A$4,306. Although Mia incurs a higher tax liability in 2027/2028 because net rental losses are quarantined and cannot be offset against her salary and wage income, these losses are carried forward and utilised upon the disposal of the property in 2028/2029. The accumulated net rental losses reduce the taxable capital gain, thereby lowering the tax payable on disposal. As the capital gain is taxed at Mia’s higher marginal tax rate of 45%, the carried-forward losses result in a significant reduction in her overall tax liability. Caution: CGT and negative gearing calculations are complex, and results vary based on personal circumstances. We recommend consulting a tax professional, and every investment case should be reviewed separately. | |||
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