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Negative Gearing in Australia Explained: How It Works and What Is Changing

How negative gearing works in Australia, how the tax saving is calculated, and who the changes from 1 July 2027 affect, with a worked example.

Stresst Editorial6 min read
Negative Gearing in Australia Explained: How It Works and What Is Changing

Negative gearing is one of the most talked about parts of Australian property investing, and the rules are changing. The maths is simple once you see it laid out. Here is how it works, who the change affects and from when, and what it looks like in real numbers.

What is negative gearing?

The Australian Taxation Office (ATO) describes a rental property as negatively geared when its deductible expenses are more than the income it earns. Typical deductible expenses include loan interest, council rates, insurance, property management fees and repairs.

Under the current rules, the ATO explains that you can claim rental deductions against your rental income and your other income, such as salary, wages or business income. If your other income is not enough to absorb the loss, you can carry the loss forward to the next income year.

In plain terms, the loss lowers your taxable income, so you pay less tax. The saving does not make the loss disappear, but it softens it while you hold the property for rent and long term growth.

How the tax saving is calculated

The saving is the difference between two tax bills: the tax on your other income without the property, and the tax on your other income after the rental loss is taken off. While the loss stays within one tax bracket, that works out as the loss multiplied by your marginal rate plus the 2% Medicare levy.

These are the ATO resident tax rates for 2026-27, which do not include the Medicare levy:

Taxable incomeTax on this income
0 to $18,200Nil
$18,201 to $45,00015c for each $1 over $18,200
$45,001 to $135,000$4,020 plus 30c for each $1 over $45,000
$135,001 to $190,000$31,020 plus 37c for each $1 over $135,000
$190,001 and over$51,370 plus 45c for each $1 over $190,000

So an investor in the 30% bracket saves around 32 cents in tax for every dollar of rental loss, and an investor in the 37% bracket saves around 39 cents.

What is changing, and from when

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, and the ATO confirms these measures are now law. The negative gearing changes apply to the 2027-28 income year and later years, which means from 1 July 2027.

From that date, when your deductions for a residential property are more than the income it earns, the excess is no longer deductible against your other income in that year. Instead, it is carried forward and can be used against residential property income in later years, and in some cases against gains on residential property.

The change has clear limits, and that is where the opportunity sits. The rule does not apply to:

  • Properties held before the cut-off. A property last acquired before 7.30pm AEST on 12 May 2026 keeps the current treatment. Under the Act, a property bought under a contract counts from the date you entered the contract, so a contract signed before the cut-off can qualify.
  • New builds. A new residential dwelling keeps the current treatment. The exact definition is still being finalised.
  • Positively geared properties. If the rent covers the deductible costs, there is no excess loss for the rule to catch.

The Act also leaves complying superannuation funds and widely held unit trusts outside the rule.

So the change mainly affects one group: investors who buy an established home after 7.30pm AEST on 12 May 2026 and run it at a tax loss from 1 July 2027.

A worked example

Here is an investor who bought an established home after the cut-off. The figures below come from the Negative Gearing calculator in Stresst.

  • Rent: A$24,000 a year
  • Loan interest: A$35,000 a year
  • Other expenses (rates, insurance, management, repairs): A$8,000 a year
  • Other income: A$95,000 a year

The rental loss is A$24,000 minus A$43,000, which is A$19,000.

Until 30 June 2027. Tax and Medicare levy on A$95,000 comes to A$20,920. On A$76,000 (after the loss) it comes to A$14,840. The tax saving is A$6,080. The property's cash shortfall is A$19,000, so the after tax cost is A$12,920 a year, or about A$248 a week.

From 1 July 2027. The A$19,000 loss no longer reduces tax on the A$95,000 salary, so the after tax cost becomes the full A$19,000 a year, or about A$365 a week. That is A$6,080 a year more. The A$19,000 loss is carried forward instead, assuming the investor has no other residential property income to set it against.

If the same property had been held before the cut-off, or was an eligible new build, the cost would stay at A$12,920 a year.

At A$150,000 of other income, the saving until 30 June 2027 rises to A$7,130 and the after tax cost falls to A$11,870 a year, because the marginal rate is higher.

Key dates and what is still being settled

Last checked: 4 November 2026.

  • 7.30pm AEST, 12 May 2026: the cut-off for properties that keep the current treatment.
  • 26 June 2026: the Act received Royal Assent.
  • 1 July 2027: the change applies from the start of the 2027-28 income year.
  • New build definition: on 4 August 2026 the Treasurer released draft legislation for consultation. It proposes that a property will generally count as new where it genuinely adds to housing supply and was bought within 24 months of a certificate of occupancy being issued. The final definition is due to be set in legislation, so check back here for updates.

For your own tax position, speak to a qualified Australian tax adviser.

Run your own numbers in Stresst

The Negative Gearing calculator, part of Stresst Premium, shows your after tax holding cost before and after 1 July 2027 based on whether your property was held before the cut-off, is a new build or is an established home bought after it. Pair it with the free Stamp Duty / Transfer Duty calculator to see the full cash you need to buy.

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Sources

This article is general information only and is not financial, tax or legal advice.

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