Negative Gearing: What Investors Need to Know

What the Proposed Changes to Negative Gearing Mean for Property Investors

The Australian property investment landscape is set to change following the Federal Government's announcement of proposed reforms to negative gearing and the Capital Gains Tax (CGT) discount.

​If you're considering purchasing an investment property, or you're wondering how these changes may affect your future plans, here's what you need to know.

What Is Negative Gearing?
Negative gearing occurs when the costs of owning an investment property—such as loan interest, maintenance, insurance and other expenses—are greater than the rental income the property generates.

Traditionally, eligible investors have been able to claim these losses as a tax deduction against their taxable income, making negative gearing a common investment strategy for many Australians.

What Has the Government Announced?
As part of the 2026 Federal Budget, the Federal Government announced proposed changes that would limit negative gearing for certain residential investment properties from 1 July 2027.

Under the proposal:

• Existing investment properties are generally expected to be grandfathered, meaning current owners would not be affected.
  
• New residential builds would continue to qualify for negative gearing.
  
• Established residential properties purchased after the announcement would be subject to the new rules from 1 July 2027. Rental losses would generally no longer be able to offset salary and wage income in the same way as before.
  
• The Government has also announced proposed changes to the Capital Gains Tax discount.
  

These reforms are intended to encourage investment in new housing while increasing the supply of newly built homes across Australia.

What Does This Mean for Investors?
For many buyers, tax benefits have historically been one factor when deciding whether to invest in property. While tax outcomes remain important, they should never be the sole reason for purchasing an investment property.

The proposed changes mean investors may need to place even greater emphasis on:

• Choosing the right property for long-term growth
  
• Understanding cash flow and ongoing holding costs
  
• Ensuring repayments remain affordable under different interest rate scenarios
  
• Structuring finance appropriately from the beginning
  

Every investor's financial circumstances are different, which is why personalised advice has never been more important.

Should You Still Invest?
Absolutely—but your strategy may need to evolve.

Property investment is about much more than tax deductions. Rental demand, location, capital growth potential, financing structure and your long-term financial goals all play an important role in determining whether an investment is right for you.

Some investors may continue to find opportunities in newly built homes, while others may focus on different investment strategies altogether.

The key is making informed decisions based on your individual circumstances rather than reacting to headlines.
How KLM finance Can Help
Whether you're purchasing your first investment property or expanding your portfolio, having the right lending strategy is essential.

At KLM finance, we work closely with our clients to understand their goals, assess borrowing capacity and structure finance that supports their long-term plans. We also encourage clients to seek advice from their accountant or financial adviser regarding the tax implications of any investment decisions.

​If you're considering an investment property or would like to understand how the proposed changes may affect your borrowing options, we'd be happy to help.

Disclaimer: This article contains general information only and should not be considered financial or tax advice. You should seek independent advice from a qualified accountant or financial adviser before making any investment decisions.