Negative gearing 2026: what's allowed, what's threatened, what to do

How negative gearing actually works

You're "negatively geared" if your rental expenses exceed rental income for the year. The loss can be offset against other income (wages, dividends), reducing your overall tax bill.

Typical example - $700,000 unit, $30K rent: • Rental income: $30,000 • Mortgage interest (80% LVR, 6.2%): $34,720 • Property management 7%: $2,100 • Council rates: $1,800 • Insurance: $1,400 • Repairs: $1,500 • Strata: $4,500 • Depreciation (building + fittings): $8,000 • Total expenses: $54,020 • Loss: $24,020

Tax effect at 37% marginal rate: • Loss claimed against wages: $24,020 • Tax saved: $24,020 × 37% = $8,887 • Plus 2% Medicare: $480 • Total tax saving: $9,367/year

The out-of-pocket cost ($24,020) is real, but the after-tax cost is only $14,653. The property still has to appreciate enough to make the long-term math work.

Depreciation matters most: it's a non-cash deduction. The $8,000 above costs you nothing out-of-pocket but reduces taxable income by $8,000. A 6-year-old apartment can yield $10K+/yr in pure paper deductions.

The CGT 50% discount: the other half of the strategy

Negative gearing alone is a losing strategy - you're losing money each year. The actual investment thesis depends on the 50% Capital Gains Tax discount when you sell.

How CGT discount works: • Hold the asset for 12+ months • On sale, calculate the capital gain (sale price minus cost base) • Apply 50% discount to the gain • Add the discounted gain to your taxable income for that year

Worked example - sell after 10 years: • Bought 2016: $700,000 • Sold 2026: $1,150,000 • Capital gain: $450,000 • 50% discount: $225,000 added to taxable income • Tax at 37% marginal: $83,250 • Effective CGT rate: 18.5% of the gain

Compare to ungeared shares: • Same $450K gain over 10 years • Same 50% CGT discount • Same $83,250 tax • BUT no annual deduction during the hold period

Property's edge: the negative gearing deductions during the hold period are taxed at marginal rate (37%) but the capital gain is effectively taxed at half (18.5%). You're converting marginal-rate income into capital-rate income.

Property held by SMSF: even better - SMSF CGT rate after 12 months is just 10% (33.3% of the 15% super tax rate).

Who actually negatively gears?

ATO data from the 2022-23 tax year (most recent published, June 2024):

• Total individuals with rental property: 2.24 million (about 16% of all taxpayers) • Of those, negatively geared: 1.11 million (~50% of investors) • Average loss claimed: $9,840/year • Total losses claimed against other income: $10.9 billion

Income distribution of negatively geared investors: • Under $80K: 30% (mostly modest investors, single rental property) • $80K-$150K: 35% (the largest cohort - mid-career professionals) • $150K-$250K: 22% (peak savings stage) • Over $250K: 13% (sophisticated investors, often multiple properties)

The political fault line: although the dollar value is concentrated at the top, the number of users is spread across middle-income earners. Most negatively geared investors are nurses, teachers, tradespeople, mid-level managers - not millionaires.

Concentration of multiple properties: about 70,000 Australians own 5+ investment properties. They're a tiny fraction of investors but own ~15% of investment housing stock.

Reform threats: the political timeline

1985 to 1987: Hawke government abolished negative gearing for property only. Rents reportedly rose in Sydney/Perth (debated). Reinstated 1987.

2016 election: Bill Shorten's Labor proposed limiting negative gearing to new builds only and halving the CGT discount to 25%. Lost election. Most analysts attribute the loss partly to scare campaign on these policies.

2019 election: Labor doubled down on the same proposals. Lost again.

2022 election: Albanese dropped the negative gearing policy entirely. Won.

2024 internal review: Treasury reportedly modelled various negative gearing reforms. Treasurer Jim Chalmers ruled out changes in the current term (i.e., before 2025 election).

2025 election (May 2025): Labor explicitly campaigned with no changes to negative gearing or CGT discount. Won.

2026 status: NO PROPOSED CHANGES. Treasurer says "not under consideration this term" (term ends 2028).

2027/2028 election: this is where it gets interesting. If Labor wins a third term, they'll be in a stronger position to revisit. If the Coalition wins, the status quo continues. The Greens will keep pushing for grandfathering proposals (existing investments keep gearing, new investments don't).

The probability map (mid-2026): • Status quo continues past 2028: ~70% • Grandfathered reform (new properties lose gearing): ~20% • Full repeal: ~10%

Practical advice for current and prospective investors

If you're currently negatively geared: • Don't panic-sell. Reform - if it ever happens - is almost certainly grandfathered. Your existing structure would be preserved. • Keep depreciation schedules current. A new schedule from a quantity surveyor costs $500-$700 and routinely unlocks $5-$10K in deductions you weren't claiming. • Watch interest rates. If RBA cuts continue, your interest expense drops - your gearing position could flip to neutral or positive, which means CGT discount becomes your only tax break (the more valuable one anyway).

If you're considering an investment property in 2026: • Mid-2026 is a buying window - rate cuts expanding capacity but prices not yet caught up everywhere • Focus on cash flow neutral or positive properties. Pure negative gearing as the entire thesis is rate-cycle vulnerable • New builds get the best depreciation - ~$10-$15K/year for the first 5 years • Avoid: holiday lets in regional towns (yield down, regulations up), city CBD apartments under 50sqm (banks restrict lending)

If reform DOES happen post-2027: • Grandfathering would protect you on currently-owned properties • New purchases after the change would lose the deduction against wages but could still carry losses forward against future rental profits • The CGT discount is harder to remove - Treasury models show it's the bigger fiscal cost, but politically harder to touch

The neutral-cash-flow strategy is winning in 2026: properties yielding 5%+ gross are out there - many regional markets, some Perth/Brisbane suburbs. These don't need negative gearing to make sense.