The Government’s legislation introducing changes to negative gearing arrangements for residential investment properties is now law.

Under the law, negative gearing deductions will generally be limited to eligible new residential properties that add to housing supply from 1 July 2027. Existing residential investment properties owned at 7:30 pm AEST on 12 May 2026 will continue to benefit from grandfathering arrangements until they are sold.

Key changes include:

• Negative gearing deductions for established residential properties acquired after 7:30 pm AEST on 12 May 2026 will be restricted from 1 July 2027.
• Existing residential investment properties owned at 7:30 pm AEST on 12 May 2026 will remain unaffected until sold.
• Rental losses from affected established residential properties will only be deductible against residential rental income or residential property capital gains.
• Excess losses can be carried forward and applied against future residential property income.
• Eligible new residential properties that add to housing supply will continue to qualify for negative gearing deductions.

What is negative gearing?

Negative gearing occurs when the costs associated with owning an investment property exceed the rental income generated from that property, resulting in a net rental loss.

These costs can include:

• Interest on investment loans
• Council and water rates
• Insurance
• Repairs and maintenance
• Property management and other holding costs.

Under the current rules, those losses can generally be offset against other taxable income, including salary and wages.

This treatment will continue for residential investment properties owned at 7:30 pm AEST on 12 May 2026 under the grandfathering provisions. Investors purchasing established residential properties after that time will instead be subject to the new rules from 1 July 2027.

The changes are directed specifically at residential property investments and do not affect negative gearing arrangements for other investment classes, such as shares.

Exclusions from the restrictions

There are several exclusions from the negative gearing restrictions, including:

• Residential investment properties owned at 7:30 pm AEST on 12 May 2026
• Eligible new residential properties that add to housing supply
• Properties held through widely held trusts and superannuation funds
• Targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

Further administrative guidance is expected on several practical matters, including aspects of the new build exemption and the application of the rules to more complex ownership structures.

Commencement date

The legislation received Royal Assent on 26 June 2026, confirming the new restrictions will commence from 1 July 2027.

Existing residential investment properties owned at 7:30 pm AEST on 12 May 2026 will continue to be subject to the current negative gearing rules until they are sold.

Investors who purchase established residential properties after the Budget announcement date should consider how the new loss quarantining rules may affect future investment decisions, cash flow and long-term tax outcomes.

If you are considering purchasing, selling or restructuring residential investment properties, now may be an appropriate time to review your investment strategy and understand how the changes may affect your future tax position.

If you would like to discuss how these changes may affect your investment strategy or property holdings, please contact our team of accountants.