Negative gearing in Australia means holding an investment, usually a rental property, where the deductible costs exceed the income it earns, so the net loss reduces your other taxable income. That position is changing: under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, losses from existing arrangements remain deductible against other income only up to 30 June 2027, and from 1 July 2027 residential negative gearing is limited to new builds.
If you already hold investment property, tools such as PropVA can save time tracking your net rental losses across the transition. This guide explains how gearing works and exactly what the reform changes, then how to test whether a geared purchase still makes sense.
How negative gearing works
Negative gearing arises when the ongoing costs of an investment exceed the income it produces. For a rental property the big-ticket items are loan mortgage interest, maintenance, repairs, management fees and depreciation on eligible assets. When those outgoings pass the rent collected, the shortfall becomes a net rental loss.
Under current rules that loss can be claimed against your other taxable income, such as salary or business income, which reduces the tax you pay at your marginal rate. The saving is never dollar-for-dollar: a $10,000 loss saves $10,000 multiplied by your marginal tax rate, not $10,000 in cash.
What changes on 1 July 2027
The reform act sets three dates worth memorising. Losses from residential investments can still offset other income for income years up to 30 June 2027. From 1 July 2027, deduction of rental losses against other income is limited to newly constructed homes. Properties held at 7:30pm AEST on 12 May 2026 are exempt from the change, preserving their current treatment. Related capital gains tax reforms apply to gains that accrue after 1 July 2027 rather than retrospectively.
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Purchase timing, contract structure and entity choices all interact with those dates. Anyone considering a geared purchase between now and the application date should confirm their specific position with a registered tax adviser before signing anything.
A brief history
The arrangement has existed in Australian tax law since 1936. It was abolished between 1985 and 1987, then reinstated after rents rose in the two largest cities during the experiment. That episode is why every proposal since gets tested against its likely effect on rents and on the wider housing market, and why the policy remains contested even though the current reform is now law.
Testing whether the numbers work
- Model the full cost: interest, council rates, insurance, management fees, maintenance and strata levies against realistic rent.
- Price the tax benefit correctly: apply your marginal rate to the projected loss, not the loss itself.
- Stress-test the cash flow: vacancies, rate movements and repairs land on you regardless of the tax outcome. Build a buffer covering several months of shortfall.
- Check the growth assumption: the strategy only pays when capital growth eventually exceeds the accumulated after-tax losses, which is an assumption to justify with evidence rather than hope.
Salaried investors can also smooth the cash flow by applying for a PAYG withholding variation so the expected refund arrives during the year instead of at tax time. Speak with mortgage brokers about loan structure and with a registered tax adviser about eligibility before lodging one.
Positive gearing as the alternative
A positively geared property earns more than it costs, producing taxable income from day one but needing no subsidy from your salary. Investors choose between them by priority: immediate income and lower risk point toward positive gearing, while a long growth horizon with the capacity to absorb shortfalls suits a geared purchase. Neither is universally right, and the right choice depends on income, borrowing capacity and tolerance for volatility.
Where to check the detail
Base any decision on primary sources: the ATO’s guidance pages for current deductibility rules and transition dates, plus independent calculators and worked examples such as published investor case studies that show real holding costs rather than headline yields.
The practical step this month, especially for existing holders, is a written projection of each property’s position across the 2027 boundary. Knowing whether your asset qualifies for the exemption and what the new-build limit means for your next purchase turns a confusing reform into a plan.
