Negative Gearing Changes in Australia from 1 July 2027

By GrowThenDraw Editorial Team · Updated August 2, 2026 · 9 min read · Editorial policy

Australia's negative-gearing change is now law. Schedule 2 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 applies from the 2027–28 income year and limits when excess residential dwelling deductions can reduce other income such as wages.

The phrase ‘negative gearing is abolished’ is too broad. The legislation preserves important exceptions and creates a quarantine and carry-forward mechanism for affected property losses.

The short version

• 2026–27 remains under the current rental-loss treatment.
• From 2027–28, an affected residential dwelling loss generally cannot reduce wages or other non-residential income.
• An ownership interest last acquired before 7:30 pm ACT legal time on 12 May 2026 is an exception.
• A new residential dwelling in relation to the taxpayer is also an exception.
• An unused affected loss is quarantined and carried into later income years; it can reduce later residential rental income and may interact with residential capital gains.

What ‘quarantined’ means

Assume an affected established dwelling produces $50,000 of assessable residential rent and $65,000 of otherwise deductible residential expenses in 2028–29. Section 26-155 limits the current deduction to the residential income, leaving $15,000 quarantined rather than allowing that amount to reduce salary.

The remaining amount is carried into the next income year. If later residential rental income exceeds current deductions, the carried amount can reduce that net residential rental income. The Act's own example carries losses through two years and then absorbs them when the dwelling becomes profitable.

The legislation also provides an ordering interaction with residential capital gains. The calculator does not model a sale, so it carries the loss into later projected rental income and discloses that limitation instead of pretending the CGT interaction does not exist.

Which property interests are grandfathered

The exception is framed around an ownership interest in a residential dwelling last acquired before 7:30 pm, by legal time in the Australian Capital Territory, on 12 May 2026. For a dwelling acquired under contract, the section treats the ownership interest as acquired when the contract was entered into for this cutoff test.

Changes in ownership, replacement interests, trusts, partnerships and unusual contracts can require legal and tax analysis. A calculator selection cannot prove grandfathering; it can only model the treatment after you have established which category applies.

What counts as a new residential dwelling

The Act contains a detailed definition and conditions for a dwelling to be new in relation to a taxpayer. A marketing description such as ‘new apartment’ is not enough by itself to establish the tax outcome.

Use the calculator's qualifying-new-build option only after checking the statutory conditions and your facts. Off-the-plan contracts, substantial renovations, replacement premises and prior sale or occupation history can need specialist advice.

What still makes up a rental result

The reform changes where an excess affected loss can be used; it does not turn private expenditure into a deduction. Rental income must still be declared, the property generally needs to be rented or genuinely available for rent, and private or non-commercial use can require apportionment.

Interest follows the use of borrowed funds. Principal repayments are not deductible. Capital works and decline-in-value claims have separate rules, and an amount already deducted can affect a later CGT cost-base calculation.

Tax rates also change in 2027–28

The resident rate on taxable income between $18,201 and $45,000 is 15% for 2026–27 and is legislated to fall to 14% from 2027–28. The 30%, 37% and 45% rates and their current thresholds remain in the scheduled table. A $250 Working Australians Tax Offset also applies from 2027–28 for eligible labour income.

That means a projection should not merely copy a 2026 marginal rate into every future year. GrowThenDraw uses the scheduled first-rate change and offset in its tax-difference estimate, while keeping future income growth editable and disclosing the simplified Medicare treatment.

How to compare a property without relying on a tax benefit

A property that works only while a loss offsets a high salary can look very different after the 2027 quarantine begins. The investment-property calculator exposes both paths so the tax label cannot hide the cash requirement.

• Calculate collected rent after a realistic vacancy allowance.
• Separate cash expenses, loan interest, loan principal and non-cash deductions.
• Test cash flow before tax and after the applicable tax treatment.
• Find the weekly rent required for cash break-even rather than assuming it will occur.
• Run zero-growth and higher-expense scenarios alongside the base case.
• Keep CGT and selling costs outside projected equity unless they are modelled explicitly.