Negative gearing changes - How will it impact me?
The Federal Budget announcement on the 12th May 2026 was expected to be controversial, with the biggest shake up of our taxation system in a long time. Some people wonder if it went too far, others wonder if it went far enough? Let’s put aside the politics and broader societal impact, and take a look at what it means for you.
First, a reminder – What is negative gearing? In simple terms, when I make a loss on my investment (the cost is greater than the profit), I could use that loss to reduce the tax I paid on all of my income (i.e. rental income and PAYG income). The most common strategy we saw was negative gearing on investment properties, where landlords were happy to take a loss because it reduced their taxable income at the end of the financial year. Arguably, this led to higher demand from investors in the market, rapidly increasing the value of property in Australia.
The changes propose that for all new properties purchased after budget night, unless they are a brand new build, negative gearing can only be applied to the rental income. The intention is to reduce demand and competition amongst first home buyers in cheaper established properties, and incentivise more investment in building new properties to ease Australia’s supply issue.
If you already owned the property prior to budget night, these changes do not apply to you. If you buy a property after budget night, these changes will apply from 1 July 2027 – unless it’s a brand new build.
While these changes announced in the budget still need to be legislated, banks have already started to implement the changes into their borrowing capacity calculations for new purchases. Why are banks implementing a change which has not yet been legislated? Because the impact to your borrowing capacity could be substantial – and the bank needs to consider this under the Responsible Lending Guidelines as a foreseeable adverse change.
A reduction of borrowing capacity for many investors will have a direct impact on the market prices, and we’re already seeing values fall in the capitals. For now, first home buyer demand will continue for the cheaper properties in regional areas – but the future is unknown. Changes to Capital Gains Tax will also play its part.
If you have a pre-approval to purchase an investment property, do not assume that it remains current. Check with your bank or Broker to review the figures before committing to an unconditional purchase.