Proposed Negative Gearing Changes

Nijo Antony
4 days ago
4 min read

What Property Investors Need to Know

The recent Federal Budget announcement regarding negative gearing has created significant concern among property investors.

Many clients are asking:

Will negative gearing disappear completely?
Should I buy before 1 July 2027?
Will my current investment property still be protected?
What happens inside my SMSF?
Should I restructure now?

The important point is this:

The proposal is primarily aimed at future purchases of established residential investment properties, not existing holdings.

Under the proposal currently announced:

Existing investment properties held before Budget night are proposed to be grandfathered
Eligible new builds would continue to retain access to negative gearing
Established residential properties purchased after 1 July 2027 may no longer allow rental losses to offset salary or business income

That distinction is critical for existing investors.

What Negative Gearing Actually Means

Negative gearing occurs when the costs of holding an investment property exceed the rental income received.

Common deductible costs include:

Interest
Rates
Insurance
Repairs
Depreciation
Property management fees

Under the current rules, those losses can generally reduce other taxable income, such as:

Wages
Business income
Investment income

For many investors, especially during periods of higher interest rates, this has helped reduce cash-flow pressure while building long-term assets.

What Is Proposed to Change?

Based on the current Budget announcement, from 1 July 2027:

Negative gearing would generally be restricted to eligible newly constructed properties
Established residential properties acquired after that date may no longer allow rental losses to reduce PAYG or business income
Excess losses may instead be quarantined and carried forward against future rental profits or capital gains
Existing properties owned before Budget night are proposed to continue under the current rules

The proposal is effectively designed to redirect investor demand toward new housing supply rather than established residential stock.

Why Grandfathering Matters So Much

For most current investors, the grandfathering rules are likely to be the single most important part of the proposal.

If the current framework proceeds:

Existing investment properties may continue operating under the current negative gearing rules
Interest deductions may still remain fully deductible
Rental losses may still offset salary and business income
Long-term investment strategies may remain largely unchanged

This means many existing investors may experience little practical change at all.

The larger impact may instead fall on:

Future investors
Younger buyers entering the market
Purchasers of established residential investment properties after 1 July 2027

Historically, governments introducing major tax reforms have often used grandfathering provisions to reduce:

Market disruption
Investor panic selling
Banking instability
Sudden housing market shocks

Practical Example - Existing Investor

A Gold Coast business owner purchased two investment properties in 2022.

The properties currently generate annual rental losses due to higher interest rates.

Under the current proposal, those existing properties may continue operating under the existing rules because they were acquired before Budget night.

That means:

Interest deductions may still be claimable
Rental losses may still offset business income
The investor may not need to restructure or sell purely because of the proposed changes

For many current investors, this is a very different outcome from the headlines suggesting “negative gearing is ending”.

Practical Example - Future Investor

A medical specialist plans to purchase an established Brisbane apartment in late 2027.

Under the proposed rules:

Rental losses on that property may no longer reduce PAYG income
The annual after-tax cash flow position may become less attractive
Borrowing capacity and holding costs may need closer review

However, if the same investor instead purchased an eligible newly constructed property, the negative gearing deductions may potentially still remain available.

This may materially influence future investor behaviour and purchasing decisions.

What About SMSF Investment Properties?

Another major area of client concern is residential property held inside self-managed superannuation funds.

SMSFs already operate under very different tax rules compared to personal ownership.

Key differences include:

Super funds generally pay tax at 15% during the accumulation phase
Capital gains may be reduced to an effective 10% after 12 months
Rental losses are generally trapped within the fund
SMSF borrowing arrangements remain heavily restricted

As a result, traditional negative gearing benefits are already more limited inside superannuation structures.

However, future reforms could still potentially affect:

newly acquired residential properties inside SMSFs
borrowing deductibility
retirement phase tax concessions
broader property investment rules inside super

Practical Example - SMSF Property

A farming couple owns a residential investment property inside their SMSF using a limited recourse borrowing arrangement.

The property currently generates modest rental losses.

Because the losses remain within the super fund, the tax outcome already differs significantly from personally owned property.

Under the current proposal, the practical impact on many existing SMSF-held properties may therefore be less dramatic than some investors initially assume.

The bigger issue for many SMSF investors may instead become:

Future acquisitions
Borrowing strategy
Liquidity
Diversification
Long-term retirement planning

Should Clients Make Changes Now?

For most clients, making major decisions purely based on political commentary is premature.

Selling assets, restructuring ownership or triggering capital gains tax without complete legislation can create unnecessary problems.

The better approach is to:

Review cash flow
Assess debt servicing capacity
Understand future holding costs
Review long-term strategy
Ensure structures remain commercially appropriate

Good investment decisions should still be driven primarily by:

Asset quality
Cash flow
Debt management
Long-term growth
Retirement planning
Asset protection

Tax outcomes remain important, but they should not be the sole driver.

Final Thoughts

The proposed negative gearing changes are significant, but they are more targeted than many headlines suggest.

For existing investors, the proposed grandfathering treatment is likely to be the most important issue.

For future investors, particularly buyers of established residential property after 1 July 2027, the investment landscape may look very different.

For now, the most sensible approach is to remain commercially focused, avoid panic decisions and properly model future investment decisions before acting.

If you want to chat about your situation or have any questions, we are here to help.

Book a meeting

Nijo Antony

Director