Property, CGT & Negative Gearing
Negative Gearing Reform
From 1 July 2027, one of the three features that made Negative Gearing possible - the ability to freely apply a property loss against your other income - no longer applies to a specific category of property. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (the same Act behind the CGT reforms - see CGT Indexation Method), net rental losses on established residential properties acquired on or after 7:30pm AEST on 12 May 2026 (Budget night) are quarantined, rather than deductible against your other income.
The core shift: from subsidising investment to protecting labour income
Previously, a loss on an investment property reduced the tax on your salary - meaning income earned from working effectively subsidised a loss made on investing. The reform severs that link for this asset category: property losses no longer reach into your wage income and reduce the tax on it. The tax system stops treating "money you earned by working" and "money you lost on an existing house" as interchangeable. Property investment still has to work on its own economics - rental yield versus holding costs - without help from the tax treatment of your job.
What "quarantined" means in practice
The loss doesn't disappear - it just can't be used against your salary or other non-property income anymore. Instead, a quarantined loss can be:
- offset against other residential rental income you have in the same year, or
- carried forward to future years and applied against future residential rental income from that asset, or against a capital gain when the property is eventually sold.
In effect, the loss stays tied to the residential property itself (or the broader residential portfolio), rather than flowing through to reduce tax on wages.
What's carved out
- Properties held before Budget night (12 May 2026) are grandfathered - full negative gearing against other income continues, uncapped, exactly as before.
- New residential dwellings (new builds) remain fully negatively-gearable regardless of when purchased - deliberately, since the goal is to redirect investment toward new housing supply rather than block investment altogether.
- Certain entity types, including most widely-held unit trusts (managed investment trusts), aren't captured.
Why it was introduced
The stated policy intent is to stop the tax system giving property investment in existing homes the same standing as income from work, while specifically preserving the incentive to build new housing supply - new builds keep full access to negative gearing. This is a genuine policy position with real disagreement on both sides - some argue it will ease investor-driven demand pressure on established housing, others argue it will constrict rental supply or push investment elsewhere - so it's worth considering this as stated intent rather than the outcome.
Related terms
See it in your plan
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