The Basics of Negative Gearing (Property & Shares)

Gearing simply means borrowing money to invest.

• If your investment earns more income than it costs to run, it is Positively Geared. You make a profit, and you pay tax on that profit.
• If your investment costs more to run than it earns in income, it is Negatively Geared. You are making a cash loss each year.

The Historic Appeal of Negative Gearing

Why would anyone deliberately make a loss? Because for decades, the Australian Taxation Office (ATO) allowed you to take that investment loss and deduct it against your primary income (like your salary).

The Old Strategy: You earn $100,000 at your day job. Your investment property loses $15,000 a year because the mortgage interest is higher than the rent. The ATO would reduce your taxable income to $85,000, triggering a massive tax refund that helped cover the cash shortfall. The investor's ultimate goal was that the property's long-term capital growth would eventually outweigh the short-term cash losses.

The 2027 Property Reforms: The "Used Property" Trap

To increase the supply of new homes and stop investors from driving up the prices of existing houses, the government completely overhauled these rules. From 1 July 2027, negative gearing is heavily restricted based on what type of property you buy.

1. Buying an Established (Existing) Home: If you purchase an older, established home today, you cannot use its rental losses to reduce the tax you pay on your salary after 1 July 2027. Instead, those losses are "quarantined." You can only use them to offset future rental income, or carry them forward to reduce your Capital Gains Tax when you eventually sell the property. The immediate tax refund strategy is dead for established homes.

2. Buying a "New Build": If you buy a brand-new home, an off-the-plan apartment, or build a new house on vacant land, you are exempt from the new rules. You can continue to negatively gear the property and claim losses against your salary, just like the old days. (Note: Knocking down a house to build a single new house doesn't count; you must be adding to the total housing supply, like replacing one house with a duplex).

3. The Grandfathering Clause (For Existing Owners): If you already owned an investment property, or signed a contract to buy one, before 7:30 PM AEST on 12 May 2026 (Budget Night), your property is fully protected. You can negatively gear that specific property against your salary for as long as you own it.

Negative Gearing for Shares (Unchanged)

The media hyper-focuses on property, but you can also negatively gear shares. If you take out an investment loan to buy dividend-paying ETFs or shares, and the interest on the loan exceeds the dividends you receive, you make a loss.

The recent budget reforms did not touch shares. You can still fully negatively gear share portfolios and deduct those losses against your salary, making "debt recycling" (borrowing to invest in the stock market) a highly attractive strategy under the new tax regime.

Interactive: The 2027 Negative Gearing Cashflow Simulator

See exactly how the new tax laws impact your monthly budget if you buy an established home versus a new build.

General Advice Warning: The information provided here is for general educational purposes only. It does not take into account your personal financial objectives, situation, or needs. Before making any financial decisions, please consider the appropriateness of the information and consult with a licensed financial adviser.