What Is Negative Gearing in Australia? (2027 Reform Explained)

Most explainers describe negative gearing as if nothing’s changing. Something big actually is. So, this covers what is negative gearing in Australia today, plus the real May 2026 Budget restructure starting 1 July 2027.

You might also find our 100 Points of ID in Australia: The Full Document List guide useful.

Quick Answer: What Is Negative Gearing in Australia

Negative gearing happens when your rental property costs more to hold than it earns in rent. So, the loss can reduce your taxable income today. That’s how it’s worked for decades. But the May 2026 Federal Budget changed this from 1 July 2027. Properties owned before 7:30pm AEST on 12 May 2026 stay fully protected. New builds keep unrestricted negative gearing too. Established properties bought after that cutoff face a real change: their losses can no longer reduce your salary income. Instead, those losses carry forward against future property income or capital gains.

What Is Negative Gearing in Australia, Step by Step

• Your rental property has both income and costs. Rent coming in is the income. Mortgage interest, repairs, and management fees are the costs.
• When costs are higher than rent, you make a loss on paper. That’s the “negative” in negative gearing.
• Right now, that loss can reduce your other taxable income. So, if you earn a salary, the property loss lowers the income tax you pay on it.
• This has been the standard rule for a long time. But it’s specifically this rule that’s changing for one category of property from 2027.

The Three-Bucket System Coming in 2027

• Bucket one covers properties you already owned before the cutoff. So, if you owned your property before 7:30pm AEST on 12 May 2026, you’re fully grandfathered. Nothing changes for you.
• Bucket two covers new builds, bought at any time. These keep full, unrestricted negative gearing. Losses can still reduce your salary income, no quarantine applies.
• Bucket three covers established properties bought after the cutoff. From 1 July 2027, these lose the old benefit. Rental losses can no longer reduce your salary income at all.
• Instead, bucket three losses get carried forward. So, they can only offset future income from that property, or a capital gain when you eventually sell it.

What Changes for Established Properties Bought After May 2026

• The core benefit disappears for salary income. So, if you buy an established property after the cutoff, a rental loss won’t reduce the tax you pay on your job income anymore.
• Your losses don’t vanish, though. They accumulate in a carry-forward pool instead, ready to use later.
• You can use carried-forward losses two ways. Either against future rental income from that same property, or against the capital gain when you sell it.
• There’s a real catch on reporting. You must declare your carried-forward losses every single year in your tax return. Miss a year, and the ATO’s two-year window means you could lose that loss for good.

Are You Grandfathered? Check Your Timing

• The exact cutoff is 7:30pm AEST on 12 May 2026. So, if you signed a contract before that moment, even if settlement happened later, you’re generally grandfathered.
• This includes properties under contract but not yet settled at that time. Timing of the contract matters more than the settlement date.
• There’s still some grey area around converted properties. For instance, a former home you move out of and start renting after the cutoff has an unclear status. So, get specific advice if this applies to you.
• A knock-down rebuild only counts as a “new build” if it replaces a structure on the same land. So, simply renovating an old property doesn’t shift it into the unrestricted new-build bucket.

For related reading, see our guides to Open Bank Account Online Australia: The Real Timeline and Laybuy Australia: What Actually Happened (2026 Update).

FAQ: What Is Negative Gearing in Australia

What is negative gearing in simple terms?
It’s when your rental property’s costs exceed its rental income, creating a loss that currently reduces your other taxable income, like your salary.

Is negative gearing being scrapped in Australia?
Not entirely. Properties owned before 12 May 2026 and all new builds keep full negative gearing. Only established properties bought after that cutoff lose the ability to offset losses against salary income, starting 1 July 2027.

Will my existing investment property still be negatively geared?
Yes, if you owned it before 7:30pm AEST on 12 May 2026. You’re grandfathered under the old rules for as long as you hold that property.

What’s the difference between a new build and an established property under the new rules?
New builds keep unrestricted negative gearing regardless of when you buy them. Established properties bought after 12 May 2026 have their losses quarantined from 1 July 2027, usable only against future property income or capital gains.

What happens if I forget to declare my carried-forward losses?
You risk losing that year’s loss permanently, since the ATO’s amendment window only allows a two-year lookback. Declaring carried-forward losses every year is essential once the new rules apply to your property.

You may also like

What Is Gearing Ratio? How to Calculate It and What It Means for Your Business (2026) Australian Property Investor Tax Deadline: The 2026 Date Investment Property Calculator: Cash Flow vs the Taxable Result Weight Loss Calculator Magic Number Calculator Social Security COLA 2027 Estimate: Why the Number Just Dropped

Related posts:

What Is Gearing Ratio? How to Calculate It and What It Means for Your Business (2026) Australian Property Investor Tax Deadline: The 2026 Date Investment Property Calculator: Cash Flow vs the Taxable Result PPOR: What It Means and Why It Saves You Tax (2026) Social Security COLA 2027 Estimate: Why the Number Just Dropped