The Government has announced proposed changes to negative gearing arrangements for residential investment properties from 1 July 2027. Under the proposal, negative gearing deductions would generally be limited to new builds of residential properties, while existing residential investment properties owned at Budget time would be grandfathered under transitional arrangements.

The measures are currently proposed only and will require legislation to pass Parliament before becoming law.

Key proposed changes include:

• Negative gearing deductions for established residential properties acquired after Budget night being restricted from 1 July 2027.
• Existing residential investment properties owned at 7:30 pm AEST on 12 May 2026 remaining unaffected until sold.
• Rental losses from affected established residential properties only being deductible against residential rental income or residential property capital gains.
• Excess losses being carried forward and able to be applied against future residential property income.
• Continued access to negative gearing for eligible new builds of residential properties.

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. According to the Budget Papers, this treatment would continue for established residential properties owned at Budget time.

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

Proposed exclusions from the restrictions

The Budget Papers outline several broad exclusions from the proposed negative gearing limitations, including:

• Residential investment properties owned at Budget time.
• Eligible new builds of residential properties, intended to encourage investment that adds 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.

At this stage, the Budget Papers do not clarify how long the new build exemption may apply to a property or whether it could continue across multiple ownership changes.

There is also currently limited detail regarding the proposed definition of “residential properties” for the purposes of the new rules.

Proposed commencement date

The proposed restrictions would apply from the 2027–28 financial year, subject to the transitional arrangements and exclusions outlined above.

Without draft legislation, several aspects of the proposed regime remain uncertain, including the practical administration of carried forward losses and the treatment of different property structures and ownership arrangements.

We will keep updating our communications as further changes are announced. If you would like to discuss how the proposed negative gearing changes may affect your investment strategy or property holdings, please contact our team of accountants for advice tailored to your circumstances.