Negative gearing for established residential property will be restricted from 1 July 2027. Investors who rely on offsetting rental losses against their salary or other income will need to understand the new rules, the grandfathering arrangements, and what this means for existing and planned property investments.

How negative gearing works today

Currently, where the deductible expenses of a residential investment property – such as mortgage interest, maintenance and property management fees – exceed the rental income earned, the resulting net loss can be deducted against other assessable income, including salary and wages. This is negative gearing.

What changes from 1 July 2027

Under the Budget measure, investors in established residential properties acquired after 7:30pm AEST on 12 May 2026 will no longer be able to offset rental losses against income other than (noting that these changes apply to individuals, partnerships, companies and most trusts):

• Rental income from residential properties, or
• Capital gains arising from residential property disposals.

Excess losses will be quarantined and carried forward to be offset against residential property income in future years. They are not lost – they accumulate and can be used but only against property-related income.

Grandfathering: The 7:30pm cut-off

Properties acquired before 7:30pm AEST on 12 May 2026 are fully grandfathered. This includes properties where a contract was entered into but had not yet settled at that time. Grandfathered properties retain full negative gearing until the property is disposed of.

Properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 will be subject to full negative gearing rules during that interim period, but the restricted rules will apply from 1 July 2027 onwards.

What is exempt from the new rules?

The following are excluded from the changes:

• New residential builds: Defined as dwellings constructed on previously vacant land, or where existing properties are demolished and replaced with a greater number of dwellings. Knock-down rebuilds replacing a dwelling with the same number, and substantial renovations, are not eligible. Granny flat additions to existing established properties are also not eligible. The new-build benefit applies only to the first investor purchaser - subsequent purchasers of the same property are not eligible.
• Commercial property and other asset classes such as shares: The changes apply only to established residential property.
• Properties held in superannuation funds (including SMSFs) and widely-held trusts.
• Build-to-rent developments and private investors who support government housing programs through the provision of affordable housing.
  

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