13 May 2026 Federal Budget Annoucements – Changes to Negative Gearing
The Government proposes to restrict negative gearing deductions to newly constructed dwellings from 1 July 2027, with a carve-out for currently owned properties.
From 1 July 2027, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and able to be offset against residential property income in future years. However, there will be no restrictions affecting investment properties owned at the time of this Budget (7:30 pm AEST on 12 May 2026), until they are sold.
There are a number of broad exemptions, notably for new residential property investments.
There appears to be no limitation on the number of properties that an investor can negatively gear.
Background
Negative gearing occurs when the costs of owning a rental property exceed the rental income it generates, resulting in a net rental loss. These costs can include loan interest, rates, insurance, maintenance and other expenses. The net rental loss can be offset against other income derived by the taxpayer, notably salary and wage income.
Negative gearing can apply to any type of investment (eg shares). However, the Government’s proposal will only apply to investment properties used for residential purposes.
Exclusions for certain residential premises
There are three broad exclusions from the proposed negative gearing restrictions:
- residential properties owned at Budget time;
- eligible new builds of residential premise (designed to ensuring the benefits of negative gearing are directed to investment that increases the housing stock) – there is no indication of how long such an exception will run for (eg multiple ownership); and
- properties in widely held trusts and superannuation funds (alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs).
This is only an announcement of what the Federal Government is planning to implement – it is not law yet and may change or not proceed subject to its debate and passage through Parliament.