Negative gearing is one of the most talked-about topics in Australian property — and after the May 2026 Federal Budget, the rules are set to change. Here is a plain-English guide for Sydney investors: what negative gearing is, how it works, and what the proposed 2026 reforms could mean for you.
What is negative gearing?
An investment property is “negatively geared” when the cost of owning it is more than the rent it earns — in other words, you make a rental loss for the year. The deductible costs typically include:
- Interest on your investment loan
- Council rates, water and strata levies
- Property management and letting fees
- Repairs, maintenance and landlord insurance
- Depreciation on the building and fixtures
Under the current rules, that rental loss can be deducted against your other income — such as your salary — which lowers your taxable income and your tax bill. Investors often accept a short-term cash-flow loss in the expectation that the property will grow in value over time.
A simple example
Say an investment property earns $30,000 in rent a year, but the interest and expenses come to $45,000. That is a $15,000 loss. Under today’s rules you could deduct that $15,000 against your salary, reducing the income you pay tax on. (Your actual benefit depends on your marginal tax rate — your accountant can calculate it.)
The 2026 Budget changes — what is proposed
In the 2026–27 Federal Budget, announced on 12 May 2026, the Government proposed reforms to negative gearing and capital gains tax (CGT). These changes are not yet law — they are before Parliament and are intended to start from 1 July 2027. The Bill (Treasury Laws Amendment (Tax Reform No. 1) Bill 2026) was introduced to Parliament on 28 May 2026 and still needs to pass the Senate. In summary, the proposal would:
- Limit negative gearing to new builds. From 1 July 2027, negative gearing for residential property would apply only to newly built homes.
- Grandfather existing investors. If you already owned your investment property at 7:30pm AEST on 12 May 2026, you are exempt — your current negative gearing arrangements are not affected.
- Change capital gains tax. The 50% CGT discount for individuals, trusts and partnerships would be replaced with cost-base indexation and a 30% minimum tax rate, applying to gains that accrue after 1 July 2027.
For established (existing) properties bought after the announcement, the proposal removes the ability to offset rental losses against salary or other income; instead, those losses would generally be carried forward against future rental income or capital gains. The fine detail will be confirmed when the legislation passes.
What this means for Sydney investors
- Already own an investment property? You are grandfathered — nothing changes for properties held before 7:30pm on 12 May 2026.
- Thinking of buying an established home to rent out? The tax treatment after 1 July 2027 may differ from today, so it is worth modelling the numbers with your accountant before you commit.
- Considering a brand-new or off-the-plan property? New builds are proposed to keep both negative gearing and the 50% CGT discount, which may make them relatively more attractive to investors.
Because the rules are still being finalised, the smartest move is to understand both your tax position and your borrowing position before making a decision.
How negative gearing affects your home loan
Negative gearing is a tax concept, but it is closely tied to how your loan is structured and how much you can borrow. As mortgage brokers, this is where we help:
- Borrowing capacity: lenders assess rental income and repayments differently, and some take negative-gearing benefits into account when working out how much you can borrow.
- Loan structure: interest-only versus principal-and-interest, offset accounts, and loan splits all affect your cash flow and deductible interest.
- Choosing the right lender: investment-loan rates and policies vary widely between banks — the right fit can save you thousands.
We work alongside your accountant so your loan and your tax strategy line up.
Frequently asked questions
Is negative gearing being abolished in Australia?
Not entirely. Under the 2026 Budget proposal (not yet law), negative gearing would be limited to new-build residential properties from 1 July 2027. Investors who already owned their property at 7:30pm AEST on 12 May 2026 are grandfathered and unaffected.
Do the changes affect property I already own?
No. Properties held at the time of the announcement (7:30pm AEST, 12 May 2026) are exempt from the negative gearing changes.
When do the new rules start?
They are proposed to apply from 1 July 2027, but they must pass Parliament first. Until then, the current rules continue to apply.
Is negative gearing worth it?
It depends on your income, goals and the property. Negative gearing reduces your tax in the short term, but you are still making a real cash-flow loss — the strategy relies on long-term capital growth. Always run the numbers with a registered tax agent.
Talk it through before you invest
Wonderful Global helps property investors across Chatswood, the North Shore and greater Sydney structure investment loans, compare lenders and understand how much they can borrow. We give you a clear answer within 24 hours of receiving your documents, and we work in with your accountant’s tax advice. Service available in English, Mandarin and Cantonese — call +61 404 838 365 or contact us anytime.
This article is general information only and is not tax, financial or credit advice. It does not take your personal circumstances into account, and the 2026 Budget measures described are proposals that are not yet law and may change. Please consult a registered tax agent or accountant about your situation before acting.