What the 2026 Federal Budget Means for Negative Gearing

The 2026 Federal Budget delivered one of the most significant shifts in Australian property investment tax policy in years. If you own an investment property — or are considering buying one — the changes to negative gearing rules deserve your close attention.

Negative gearing occurs when the costs of owning an investment property (interest, maintenance, rates, depreciation, and other expenses) exceed the rental income it generates. Under the previous rules, that net loss could be offset against your other income — including your salary — reducing your overall tax liability.

For many Australian investors, negative gearing has been a cornerstone of their wealth-building strategy, particularly in a high-interest-rate environment where borrowing costs have outpaced rental yields.

The 2026 Budget announced a cap on the amount of investment property losses that can be offset against ordinary income in any given income year. Key details include:

• Annual deduction cap: Net rental losses will be capped at $30,000 per year per taxpayer for properties purchased after the announcement date. Losses above this threshold can be carried forward and offset against future rental income or capital gains from the same property.
• Grandfathering for existing properties: Properties purchased prior to the Budget announcement date retain access to the existing unlimited negative gearing rules. This is a critical distinction for current investors.
• New builds exemption: To encourage housing supply, newly constructed residential properties are exempt from the cap for the first five years of ownership.

The changes apply to investment properties settled on or after 1 January 2027, giving investors a window to review their portfolios and make informed decisions before the new rules commence.

If you already own investment properties, your position is protected under the grandfathering provisions — for now. However, there are still important considerations:

Portfolio restructuring: If you are planning to sell an existing property and reinvest, the replacement property will be subject to the new cap rules. Timing your transactions carefully is essential.

Loan structure review: With the cap in place for new acquisitions, the tax benefit of high-leverage strategies is reduced. Reviewing your loan-to-value ratios and interest structures may be worthwhile.

Trust and company structures: The cap applies at the individual taxpayer level. Holding investment properties through a trust or company structure may interact with these rules differently — professional advice is strongly recommended before making any structural changes.

The new rules do not eliminate the tax benefits of property investment — they moderate them. For investors in higher income brackets, a $30,000 annual deduction cap still represents a meaningful tax offset. The key shift is that highly leveraged strategies relying on large annual losses to reduce income tax will be less effective for new purchases.

The new build exemption is worth noting. If you are considering entering the property market, a newly constructed dwelling may offer a more favourable tax position under the new framework, while also contributing to housing supply.

1. Review your current portfolio — identify which properties are grandfathered and which future acquisitions would fall under the new rules.
2. Model your cash flow — recalculate the after-tax return on any planned new investment under the capped deduction scenario.
3. Consider timing — if you are planning to sell and reinvest, understand the implications of the settlement date relative to 1 January 2027.
4. Seek advice before restructuring — changing ownership structures to work around the cap can trigger stamp duty, CGT, and other consequences that may outweigh any benefit.

These changes do not exist in isolation. The 2026 Budget also included amendments to the CGT discount and trust distribution rules, both of which interact with property investment decisions. We have covered those changes in separate articles — we recommend reading them together to understand the full picture.

The information in this article is general in nature and does not constitute personal financial or tax advice. Every investor's situation is different. Contact Golden Mane Advisory to discuss how these changes apply to your specific circumstances.