A negatively geared property doesn’t “pay for itself through tax.” If you lose $7,836 a year on an investment property and claim the deduction at 30%, you get $2,351 back. That means you’re still $5,485 out of pocket. And from 1 July 2027, not everyone can claim it at all.

Negative gearing is one of the most misunderstood concepts in Australian property investing. The phrase “the taxman pays for it” gets thrown around at barbecues, in Facebook groups and sometimes even in sales pitches. But the maths tells a different story, and the rules have now changed in a way that every investor needs to understand.

A quick note on why we're writing about tax: as mortgage brokers, we don't provide tax advice — that's your accountant's or tax adviser's role. But these changes sit squarely in our lane, because they change the cash flow a lender assesses, the borrowing capacity you'll qualify for, and the way an investment loan should be structured from day one. Our focus below is on what the new rules mean for your finance, not on your tax position.

What changed in May 2026

On 12 May 2026, the government announced reforms to negative gearing and capital gains tax. These measures are effective 1 July 2027.

From 1 July 2027, negative gearing for residential property will be limited to new builds. If you buy an established property after 7:30pm AEST on 12 May 2026, you will no longer be able to offset rental losses against your salary or other personal income. Losses can only be applied against rental income or future capital gains from the same property.

Two groups are unaffected:

•          Existing investors: Properties held at 12 May 2026 are grandfathered. If you already own an investment property, your negative gearing entitlement is unchanged.

•          New build buyers: Negative gearing remains fully available on new builds going forward, along with the existing CGT concessions.

The CGT rules are also changing. The 50% discount is being replaced with cost base indexation and a 30% minimum tax rate on capital gains accruing after 1 July 2027. This applies to all investors, though the impact varies depending on how long you hold and when growth occurred.

How negative gearing actually works (for those it still applies to)

For existing investors and new build buyers, the mechanics haven’t changed. Here’s how it works.

Negative gearing means your rental income is less than your property expenses. The shortfall becomes a tax deduction you can claim against your other income — your salary.

Say you earn $95,000 and your investment property loses $7,836 after all costs. That loss reduces your taxable income to $87,164. At the 30% marginal rate, you save roughly $2,351 in tax.

But you still spent $7,836 to get there. You’re not $2,351 ahead. You’re $5,485 behind.

Where the “it pays for itself” myth comes from

The confusion usually starts when people focus only on the tax refund. A $2,351 refund feels like a win, especially arriving as a lump sum.

But that refund only exists because you lost money on the property first. The ATO isn’t handing you free cash — it’s softening a loss. For every dollar you lose, you get back roughly 30 to 37 cents depending on your marginal rate. You’re still wearing the rest.

The strategy only works if the property grows in value enough to offset those annual losses over time. Capital growth is doing the heavy lifting, not the tax deduction.

The numbers most people skip

Say you buy a $600,000 new build investment property with a $480,000 loan at 6.2%.

Your annual costs might look something like this:

•          Loan interest: $29,760

•          Council rates: $1,800

•          Insurance: $1,400

•          Property management (7% of rent): $1,820

•          Maintenance: $1,500

•          Water rates: $900

•          Strata (if applicable): $3,200

Total expenses: $40,380.

If annual rent comes in at $32,544 ($626 per week), your net loss is $7,836.

At a 30% marginal rate, you claim $2,351 back. You fund the remaining $5,485 from your own pocket. That’s $105 a week, every week, covered from your salary or savings.

When it makes sense

None of this means negative gearing is a bad strategy. It means it’s a strategy that may depend on capital growth.

If that $600,000 property grows at 5% per year, it’s worth $765,769 after five years. That’s $165,769 in equity, minus the $27,425 in cumulative out-of-pocket losses along the way. The net position is strong.

But if growth stalls at 2%, the property is worth $662,448 after five years: $62,448 in growth against $27,425 in losses, before selling costs, CGT or opportunity cost.

The tax deduction doesn’t rescue a property that doesn’t grow.

The cash flow question to ask before you buy

Can you afford to lose $105 a week for five to seven years while you wait for capital growth?

If interest rates rise, vacancies occur or maintenance costs spike, that shortfall can blow out fast. A four-week vacancy on a $626-per-week property costs you $2,504 in lost rent on top of the losses you’re already carrying.

Negatively geared properties need a financial buffer. Without one, a single bad quarter can force a sale at the wrong time.

What this means for established property buyers post-12 May 2026

If you’re buying an established investment property now, you’ll still have holding costs and a potential loss position. The difference is that from 1 July 2027, you can’t claim that loss against your salary. The loss carries forward and can only be applied against future rental income or capital gains from that property.

This changes the cash flow calculation significantly. You’re carrying the same weekly shortfall without the annual tax refund to partially offset it. For most investors, this makes established property investment a harder case to make on cash flow alone, and shifts the calculus firmly toward either new builds or positively geared properties.

How to structure it correctly

The way your investment loan is set up matters more than most investors realise. Interest-only repayments keep your deductible costs higher, but mean you’re not paying down principal. An offset account linked to your owner-occupied loan (not your investment loan) can reduce your non-deductible debt while preserving the tax benefit on the investment side.

Getting this wrong from the start can cost you thousands over the life of both loans.

Talk to professionals before you buy

The rules have changed, but the strategy isn’t dead. For new build investors and those with existing properties, negative gearing can still work as part of a broader investment plan. It just needs to be stress-tested with real numbers and structured correctly from day one.

If you’re weighing up an investment purchase, talk to us about your borrowing capacity and loan structure before you sign anything. And speak to your accountant about how the new CGT rules affect your specific position.

Disclaimer: This is general information only and not financial advice or tax advice. Tax laws changed in May 2026 and further changes take effect from 1 July 2027. Everyone’s situation is different, speak to a qualified tax professional and financial adviser before making investment decisions. Results referenced in this document are illustrative only and may vary based on individual circumstances, including but not limited to loan amount, interest rate, credit profile, lending policy, and market conditions at the relevant time. Past performance or outcomes are not a reliable indicator of future results. Individuals should seek independent financial, credit, or legal advice specific to their circumstances before making any decision.