- Negative gearing tax concessions for property investors have been restricted to new built homes only from 12 May 2026
- The tax policy was instituted in Australia in 1936 in a bid to drive housing supply during the Great Depression
- There have been mixed responses to the winding back of negative gearing tax benefits
Curiously, negative gearing is not a term found in tax terminology but is commonly used to describe a scenario where investors can offset their losses on their investments against their other income.
It allows investors to claim these losses against their taxable income, effectively saving them tax. This applied to all asset classes but as of 12 May 2026, those purchasing existing residential properties will see their negative gearing tax concessions wound back.
What changes were made to negative gearing in May 2026?
Investors buying established homes after 7:30 pm (AEST) on 12 May 2026 will no longer not be able to offset their losses against other income from 1 July 2027.
Instead, any losses can only be claimed against rent or future capital gains generated by the property (or properties). These losses can also be carried over to future years.
Those building or buying new homes will still be able to offset their losses against their entire income, as will those purchasing other asset classes including commercial properties and shares.
The new rules will not apply to those already holding residential properties before 7:30 pm 12 May (that is, the changes are 'grandfathered') until the properties are sold.
Brief history of negative gearing in Australia
Allowing investors to claim tax concessions on their losses was a policy introduced in Australia in 1936 during The Great Depression in a bid to encourage private investment in the country’s undersupplied housing stock.
Over the ensuing years, negative gearing has been the subject of ongoing debate over its impact on housing affordability and its role in pitting home buyers against investors.
What happened when negative gearing was wound back last time?
In 1985, the Hawke/Keating reduced negative gearing benefits by not allowing rental property losses to reduce tax on other sources of income. Interest and other expenses could only be offset against future rental profits or capital gains, much like the 2026 changes.
But in the two years after negative gearing was abolished, a shortage of housing and escalating rents in some Australian cities - not all - saw negative gearing reinstated to its original form in 1987. At the time, then-Treasurer Paul Keating suggested the abolition of negative gearing in 1985 had led investors to leave the rental market.
But that brief experiment didn't stop negative gearing again coming under the spotlight by subsequent political players. Labor took the policy to abolish it to the 2016 and 2019 federal elections but lost both.
In April 2025, Labor Prime Minister Anthony Albanese ruled out changing negative gearing and capital gains tax concessions in the lead up to the May 2025 election, but the Labor government brought down the amendments just over a year later in its 2026-27 Federal Budget.
The changes will only apply to those buying existing homes with negative gearing still applying to investments in other asset classes, including new homes, commercial and industrial properties, and shares.
Negative gearing - for and against
Given negative gearing has been contentious over many years, let's run through some of the arguments for and against over the years.
For
- Negative gearing acts as an incentive for investors to provide dwellings for the rental market. By restricting negative gearing to new builds only, it could see the overall pool of rental stock shrink, causing rents to increase.
- Many landlords are ‘mum and dad' investors who aren’t particularly well off. Currently, 71% of property investors have one investment property, used as a way to 'get ahead'.
- Negative gearing encourages more people to invest, meaning there may be fewer people reliant on the age pension in the future.
- Scrapping negative gearing on existing homes will mean it will be more expensive for new investors to be landlords. This is likely to see investors look to other asset classes, leading to reduced housing supply overall.
Against
- Greater investor activity can mean there is less housing stock available for first home buyers and owner-occupiers. This, in turn, can raise house prices and make it harder for young people to enter the market or for existing homeowners to upgrade their homes to meet their changing needs.
- Negative gearing helps many people who are already asset-rich and don’t need the tax break - in other words, it helps the rich get richer.
- Negative gearing deductions costs the government billions of dollars in lost tax revenue each year.
What the experts say on negative gearing changes
"The changes to negative gearings and the CGT [capital gains tax] could result in a 5% or so fall in home prices in the short term as investors retreat due to a fall in the perceived after-tax return to property investment and this will no doubt be chalked up as a win for the policy change. But it's doubtful that the moves will boost housing affordability much over the longer term - as the basic driver of this is a shortage of housing relative to underlying population-driven housing demand. While negative gearing is to remain for new homes, it’s likely to result in unintended consequences by, e.g., making it harder for first home buyers to get into new housing. And policies that reduce investor interest in property overall will likely lead to less housing supply not more - with even the Budget papers estimating that the tax changes will reduce supply by 35,000 homes over a decade."
"While it might initially appear that limiting negative gearing to new homes only would result in an increase in new home supply. This logic only makes sense in a theoretical environment where there are only two investment options, new homes or established homes. In the real world, capital is mobile. Investors aren’t making the decision to invest in new, or established homes. They can also redirect investment to industrial property, commercial property, shares or other assets. Taxing established homes more will likely lead to less investment in housing, and therefore less investment in new home building. This will worsen the supply problem. Australia’s housing affordability problem is fundamentally a shortage of homes compared to the number of households. It can viewed as if we are trying to fit 11 million households into 10 million homes. Policies that increase the cost or risk of investing in housing do not resolve that shortage - they make it worse."
"The government's reforms to capital gains tax and negative gearing are long overdue, will improve fairness and housing affordability, and reduce speculation in home values. They will increase revenue by $3.6 billion over the forwards [in the five years from 2025-26] and eventually raise much more."
"The cessation of negative gearing for established homes coupled with potentially less generous capital gains tax discounts, will almost certainly drive-up rents. This will only diminish the saving power of aspiring first homeowners already scrimping and saving to get their first foot on the property ladder.
Negative gearing by the numbers
According to the latest ATO figures, around 1.1 million taxpayers owned 'negatively geared' investment properties.
This represented just under half the 2.25 million individual taxpayers claiming deductions against their rental income earnings.
The average negative gearing deduction was just over $8,700, according to the Property Council of Australia.
Do other countries have negative gearing?
A number of other developed economies have some form of negative gearing in their taxation regimes, although all have slightly different variations.
Canada, Germany, Japan, and Norway have similar negative gearing rules to the old Australian regime although differences between the housing markets and other variables make comparisons difficult.
The US, the UK, and The Netherlands have different systems, where rental losses are capped or restricted to certain types of income.
The New Zealand experience
New Zealand abolished its version of negative gearing on existing properties in 2021, removing landlords' ability to deduct interest payments from their rental income. The change did not apply to new builds.
At the time, New Zealand home prices were on their way to record levels, fuelled by post-pandemic immigration with interest rates also rising - much the same as what was happening in Australia over the same period.
During the time negative gearing concessions were changed, more owner-occupiers entered the housing market with an uptick in first homebuyers. There was also less investor activity.
But there was also more competition for fewer properties on the rental market, seeing rents escalate substantially.
Negative gearing was reinstated in 2024 after a change of government.
Experts say it’s difficult to attribute changes in the country’s housing market to any one policy when the dominant force in the market at the time was likely rising interest rates as well as population pressures.
It’s also worth noting New Zealand doesn’t have comprehensive capital gains tax.
Savings.com.au’s two cents
The watering down of negative gearing tax concessions in the 2026-27 Budget has generally been greeted as a bold move that has been both hailed and criticised with equal fervour from both ends of the political spectrum.
Property industry analysts agree it will likely contribute to less investor activity in the market which was already subdued thanks to three consecutive interest rate increases in 2026 before the changes were announced.
Even the federal government admits its tax changes will reduce housing supply by 35,000 over the following decade.
It will be difficult to assess the effects of negative gearing changes in isolation. Also in play will be changes to the capital gains tax discount, immigration settings, construction industry issues, interest rates, home lending policies, and broader economic conditions.
Yet it seems the one variable that all commentators agree on is that supply remains the biggest issue in fixing Australia's ongoing housing problems. It remains to be seen whether limiting negative gearing concessions to new housing only will help drive supply or see investors leave the housing sector altogether.