Negative Gearing in Australia: What the 2026 Budget Changed

Author: Tepuy Solutions | Published: October 24, 2025 | Updated: August 2, 2026 | Category: Investment Taxation, Property Investing

Overview

Negative gearing is a well-known, and sometimes controversial, feature of the Australian investment landscape, particularly concerning property. But how does it actually work, and how do its tax implications compare when you weigh property against investing in shares? This article breaks down negative gearing for investment properties and contrasts it with the tax treatment of share investments in Australia, helping you understand the real impact on your cash flow and overall returns.

What is Negative Gearing?

An investment is negatively geared when the costs of owning it (like loan interest, council rates, maintenance) exceed the income it generates (like rent).

In Australia, if your investment property is negatively geared, you can typically deduct that net rental loss against your other assessable income (like your salary) in the same financial year. This reduces your overall taxable income, resulting in a lower tax bill or a larger tax refund.

Example:

• You earn a $100,000 salary.
• Your investment property generates $25,000 in rent but has $35,000 in deductible expenses (interest, rates, repairs, depreciation).
• Your net rental loss is $10,000.
• You can deduct this $10,000 loss from your salary.
• Your taxable income becomes $90,000 (instead of $100,000).
• If your marginal tax rate is 34.5% (including Medicare levy), this deduction saves you $3,450 in tax for the year.

The strategy relies on the expectation that the property's capital growth over time will outweigh the annual cash flow losses, providing a larger profit when sold (which is then taxed, potentially at a discounted CGT rate).

How Negative Gearing Applies Specifically to Property

• Deductible Expenses: For investment properties, a wide range of expenses are typically deductible against rental income:
  • Loan interest (often the largest expense)
  • Council and water rates
  • Land tax
  • Property management fees
  • Insurance
  • Repairs and maintenance (not capital improvements)
  • Depreciation on the building structure (capital works) and eligible assets (fittings, appliances)
• Loss Offset: The key benefit is offsetting the net rental loss against other income in the same year.
• Depreciation: Claiming depreciation reduces taxable income annually but also reduces the property's cost base, potentially increasing the Capital Gains Tax (CGT) payable when you eventually sell.

Your Property vs Shares Calculator models these factors, calculating the taxable income (or loss) each year by subtracting ownership costs, interest, and depreciation from rental income, then applying your marginal tax rate.

The 2026 Budget — What Changed

In the 2026-27 Federal Budget, handed down on 12 May 2026, the government announced the abolition of negative gearing for established residential property. The change takes effect from 1 July 2027, and applies to established residential properties purchased after 7:30pm AEST on 12 May 2026 (Budget night).

• What changed: from 1 July 2027, net rental losses on affected properties can no longer be deducted against salary, wages, or other non-rental income.
• Where the losses go instead: they're quarantined — usable only to offset residential rental income, or carried forward to offset future rental income or a capital gain on that property.
• Grandfathering: properties purchased before 7:30pm AEST 12 May 2026 continue under the old rules indefinitely — the salary-offset benefit is not removed retrospectively.
• New builds: exempt from the change. A new build purchased at any time retains both negative gearing and the choice of the old 50% CGT discount or the new CPI-indexation method (see our CGT planning article for the detail on that second change).

Who Is Affected vs Who Is Not

Negative Gearing and Shares: A Different Story

The term "negative gearing" is typically not applied to share investments in the same way, mainly because borrowing to invest in shares (margin lending) has different characteristics and tax rules regarding losses.

• Interest Deductibility: If you take out a loan specifically to buy income-producing shares (a margin loan), the interest on that loan is generally tax-deductible against the investment income (dividends).
• Losses: However, if your total investment expenses (like interest) exceed your total investment income (dividends) for the year, creating a net investment loss, **you generally cannot deduct that loss against your salary or other non-investment income.**
• Quarantining: Investment losses from financial assets like shares are typically "quarantined". This means the loss can usually only be used to offset other investment income (like dividends from other shares) or carried forward to offset future investment income or capital gains.
• Capital Losses: If you sell shares for less than their cost base, this creates a *capital loss*. Capital losses can only be offset against capital gains, not against regular income like salary or dividends. Unused capital losses can be carried forward indefinitely to offset future capital gains.

Key Difference: Property investment losses (from rent minus expenses) can directly reduce your tax on salary *now*. Share investment losses (from dividends minus interest) generally *cannot* – they mainly offset other investment income or are carried forward.

Property vs Shares — The Comparison Now

Before the Budget change, the headline difference between property and shares was stark: property losses could reduce tax on salary immediately, while share losses (via margin lending) were quarantined against investment income only. That gap has now narrowed sharply for anyone buying an established property from here on.

For grandfathered properties and new builds, negative gearing still provides a significant cash flow advantage in the early years compared to share investors using similar leverage — an immediate subsidy from the tax system that helps cover the property's running costs. That advantage is not "free money": it relies on capital growth exceeding the accumulated losses over time, and a negatively geared property can become a significant financial drain if growth stalls or interest rates rise.

For an established property bought after 12 May 2026, that early cash flow advantage is gone from 1 July 2027 onward. On the tax-treatment-of-losses question, an investor in that position is now in essentially the same spot as a share investor using margin lending — losses quarantined, not usable against salary. The remaining differences between property and shares (leverage mechanics, liquidity, transaction costs, diversification) are unaffected by this change and still apply.

Run Your Numbers

The interplay between rental income, costs, interest, depreciation, tax rates, and capital growth is complex. The best way to understand the true impact of negative gearing versus investing in shares is to model your specific scenario.

Use the Tepuy Solutions Property vs Shares Calculator to compare side-by-side:

• Enter your expected loan amount, property costs, and rental yield.
• Input your marginal tax rate to see the negative gearing effect on annual cash flow.
• Compare this to investing the same upfront amount in shares, considering different return assumptions.
• See the projected net wealth outcome after tax and CGT over your chosen timeframe.

By simulating your own numbers, you can move beyond the headlines and make an informed decision based on data.

Disclaimer

This article reflects Australian tax law as at August 2026, including changes announced in the 2026-27 Federal Budget (Acts No. 49 and 50 of 2026). Tax laws change frequently. This is general information only — not financial or tax advice. Seek independent advice for your specific circumstances.