Reforming negative gearing for residential properties

Article

Published: May 12, 2026

The Government has announced reforms to negative gearing to address housing supply shortages. The proposed changes intend to limit the availability of negative gearing on residential properties.

Current rules

Under the current rules, where a taxpayer holds a residential investment property and incurs a net loss for the financial year, these losses can be offset against other income earned by the taxpayer.

There are currently no limitations on the deductibility of these losses.

Proposed reform

The Government has announced that from 1 July 2027, negative gearing will be limited to new residential builds, with losses from established properties deductible only against rental income or capital gains from residential properties. These changes apply to established properties acquired from 7:30pm AEST on 12 May 2026, with prior acquisitions exempt until disposal.

There are broad exceptions from the proposed reform, including:

Residential investment properties held before 7:30pm AEST 12 May 2026
Eligible new builds of residential properties (such as build-to-rent developments and private investors supporting government housing programs)
Residential properties held by widely held trusts and superannuation funds.

BDO comment

The reforms appear to apply to all taxpayers (including closely held trusts and companies), not just individual investors. Additionally, as announced, the changes apply regardless of the number of properties held.

There is a strange mismatch in the application dates under the announcement. While the new rule will apply to established houses acquired under a contract entered into after 12 May 2026, the denial of losses against other income only kicks in from 1 July 2027. It would usually be expected to apply from 1 July 2026. The Government may be acknowledging the extensive legislative program that they have set themselves in this budget.

The reforms certainly aim to redirect investment toward new housing supply. This goal is intended to be achieved by increasing tax burdens on new investors in established housing.

Subscribe to receive the latest BDO News and Insights