Negative Gearing in Australia: The 2026 Rules

Negative gearing is what happens when a rental property’s deductions are bigger than its rent. The ATO’s rental guide says you may be able to claim the full amount of rental expenses against your rental and other income, such as salary, so the loss lowers the tax on your pay. That’s all it is. It doesn’t turn a loss into a profit; it hands back your marginal tax rate on each dollar you lose.

In 2026 the rules changed, and for anyone buying now the change matters more than the mechanics, because it decides whether the loss does anything for you at all.

What changed this year

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is law. The ATO’s summary, updated 29 June 2026, says the government will limit negative gearing for residential property investments to new builds from 1 July 2027. From that date, losses on established homes bought from 7:30 pm AEST on 12 May 2026 can only be deducted against income from residential property, including capital gains, and any excess is carried forward to later years.

The transition is generous to people who already own. Properties held at the announcement, including those under contract but not yet settled, can keep being negatively geared until sold. A purchase made between Budget night and 30 June 2027 can be negatively geared for that period, but not from 1 July 2027. New builds keep the old treatment before and after, and commercial property and shares aren’t affected by the negative gearing change.

A new build, for this purpose, is a dwelling on vacant land, or existing properties demolished and replaced with a greater number of dwellings, and a knock-down rebuild that doesn’t add supply doesn’t count. Only the first buyer gets the benefit: subsequent purchasers of the same dwelling can’t negatively gear it.

Capital gains tax changed too, and more widely. For gains accruing from 1 July 2027, the 50% discount is replaced by cost base indexation and a 30% minimum tax on capital gains, and the Budget explainer says that applies to all CGT assets, property and shares alike, while gains made before that date keep the discount. How your own gain splits between the two regimes is squarely a question for your accountant.

A tax loss is still a loss

Moneysmart makes the point in one line: if you’re making an investment loss, it is still costing you money. For every dollar a negatively geared property costs you, the tax system gives back at most 47 cents, the top rate plus Medicare, on the 2026–27 resident rates. On a salary of $150,000 it’s 39 cents. The other 61 cents is yours to carry, every year, on the bet that the property’s value grows by more than you’ve paid out.

Under the new rules, an established home bought after Budget night gets none of that back once the new rule starts, until it earns residential income to absorb the loss. The case for buying it has to stand on the property itself.

Yield against holding cost on the North Shore

This is where units and houses part ways. The NSW Rent and Sales Report for the March 2026 quarter puts the Ku-ring-gai median strata sale price at $1,170,000 and the non-strata median, mostly houses, at $3,300,000. Median weekly rents in the same quarter were $830 for units and $1,410 for houses. That’s a gross yield of about 3.7% on the unit and 2.2% on the house. Willoughby looks much the same, at about 3.5% and 2.0%, and Hornsby’s units run higher, at about 4.4%.

A house at twice the rent and nearly three times the price costs far more to hold. The arithmetic isn’t close. Our rental yield calculator starts from the Ku-ring-gai unit figures if you want to test your own.

A hypothetical, run through the calculator

Here’s a hypothetical, using those medians as the properties and invented details for the buyer, run through our negative gearing calculator. Someone on $150,000 borrows 80% of the price, interest only, at a hypothetical 6.48%, and we leave out running costs and depreciation to keep the comparison clean.

The Ku-ring-gai median unit costs about $17,500 a year in cash before tax. Where the old rules apply, tax falls by about $6,600 and the after-tax cost is roughly $10,800, or $209 a week. Bought after Budget night, from 1 July 2027 the whole $17,500 is out of pocket each year.

The median house is a different animal. The same buyer borrowing 80% of $3,300,000 would be about $97,800 a year behind in cash, roughly $65,400 after tax under the old rules. It’s a salary-sized gap. Real running costs, strata and council rates would make both figures worse.

The cost that makes it worse, and the one that helps

Land tax is the one people forget. Revenue NSW charges it on the combined value of investment land above a general threshold of $1,075,000, at $100 plus 1.6% of the value above it, and the threshold has been frozen since 2025. A North Shore house can be over the threshold on its own land value, while a unit’s share of the land usually isn’t.

Depreciation is the one that helps, because it’s a deduction that costs no cash in the year. Capital works on homes built after 15 September 1987 are generally deductible at 2.5% a year, but most second-hand fittings in a property bought after 9 May 2017 can’t be depreciated at all, which blunts the benefit on older established stock.

How lenders count the rent

Lenders don’t count every rental dollar when they work out what you can borrow. Macquarie’s broker help centre says it considers 75% of verified residential rental income, while Westpac’s broker policy page advertised 5% rental income shading, so 95% counted, when we checked both on 30 September 2026. Neither page carries a date, and shading changes often. That spread alone can move a borrowing limit by a lot, which is why the same investor can be approved at one lender and declined at the next. Each lender then tests the whole loan at its rate plus APRA’s 3 percentage point buffer.

Low-yield houses hurt twice here. The shaded rent covers less of the interest at the buffered rate, so the gap has to come from your salary, and at North Shore house prices it’s a big gap. Units cope better.

What we’d say to an investor buying now

Our view, which plenty of property marketers will argue with: for an established home bought after Budget night, the tax deduction should carry no weight in the decision, and at a gross yield near two per cent, most North Shore houses don’t pay their way as investments on rent alone. Units and new builds are a different conversation.

The home you already own is the exception worth thinking about. If you’re upgrading and keeping the old place as a rental, it was held before Budget night and keeps the old treatment. How much of its interest stays deductible then depends on the loan’s history, and a redraw can quietly shrink it. Our upgrading page covers getting that structure right before settlement.

Sina runs the holding cost with every investor before looking at lenders, because the loan that’s approved isn’t the same as the property that’s affordable, and the two get confused more often than you’d think. What we can’t do is tell you where prices go, or give you tax advice; your accountant should check the numbers that matter before you sign. The borrowing side, including how each lender reads your rent, is on our investment loans page.