Negative vs Positive Gearing - Explained Simply

This post covers a significant piece of federal tax reform that passed the Senate on 25 June 2026. The rules are new, and the fine detail is still settling. Nothing here is personal tax advice, speak to an accountant about how this applies to your own situation before making a decision.

The Basics

Gearing just means borrowing money to invest, in this case, using a loan to buy a rental property. Whether that gearing is “negative” or “positive” depends on the relationship between your rental income and your costs.
Negative gearing is when the costs of owning the property (loan interest, council rates, insurance, property management, repairs etc) add up to more than the rental income you receive. You’re running at a loss on paper. Historically, that loss could be used to reduce your other taxable income, like your salary, lowering your overall tax bill.
Positive gearing is the opposite, your rental income is higher than your costs, so the property is turning a profit. That extra income gets added to your taxable income, meaning you pay more tax, but you’re also genuinely ahead in cash flow terms.

Why Negative Gearing Became So Popular

The traditional appeal was simple: take a tax deduction today while you wait for the property to grow in value over the years. You accept a short term cash flow loss in exchange for a bigger long term capital gain, with the tax office effectively subsidising part of that loss along the way.

What Changed in the 2026 Federal Budget

This is where things have genuinely shifted, and it’s worth understanding clearly if you’re weighing up an investment property purchase.

Properties you already held before 7:30pm AEST on 12 May 2026 are grandfathered. If you already own an investment property, nothing changes for you. You can continue negatively gearing it under the existing rules for as long as you hold it.

New builds keep full negative gearing, no matter when you buy them. If you buy or build a genuinely new residential property, you can still deduct a rental loss against your other income, including your wages, exactly as before. This is a deliberate incentive to direct investment toward new housing supply.

Established properties bought from 12 May 2026 face new rules from 1 July 2027. If you buy an established (previously lived in) investment property after Budget night, you can still negatively gear it normally during a transition period through to 30 June 2027. From 1 July 2027 onward, any rental loss on that property becomes quarantined, meaning it can only be offset against other residential rental income (from that property or others in your portfolio) or against a capital gain when you eventually sell it. It can no longer reduce your salary or wages. The loss isn’t lost, it carries forward indefinitely until you have rental income or a capital gain to use it against, it just won’t help your tax bill in the year it happens.

What This Means in Practice

• Already own an investment property? No change, you’re grandfathered.
• Buying a new build going forward? No change, full negative gearing still applies.
• Buying an established property from here on? You’ll still get some benefit through the transition period, but from mid 2027, the property increasingly needs to stand on its own rental yield and capital growth merits, rather than leaning on a tax deduction against your wage income.

Positive Gearing Isn’t Affected by Any of This

None of the reform changes how positive gearing works. If your rental income already exceeds your costs, that extra income has always been taxable and continues to be, this reform is specifically about how losses on established properties can be used, not about profitable properties.

Case Example

Steven bought an established investment property in 2022.
Nothing changes for him, he keeps negatively gearing it exactly as before.
Kristine buys an established investment property in 2028.
Her rental loss for that year can’t reduce the tax on her salary, but it carries forward and reduces the capital gain she eventually pays tax on when she sells.
Jennifer buys a brand new off the plan apartment in 2028. She can still deduct her rental loss against her wages, exactly as investors always have.

The Bottom Line

Negative gearing hasn’t been abolished, but the ground has shifted meaningfully for established property purchases made from here on. If tax minimisation has been a big part of your investment strategy, it’s worth sitting down with an accountant to properly model how these changes affect your specific plans, rather than assuming the old playbook still applies unchanged.