When a rental’s deductible expenses, interest included, are more than its rent, the result is a net rental loss, and today the ATO says the rental deductions can be claimed against rental and other income, such as salary, wages or business income. From 1 July 2027 negative gearing for residential investments is limited to new builds, with properties held at 7:30pm AEST on 12 May 2026 exempt; the ATO says these measures are now law.
General informationThe rules as the ATO and the Budget’s tax explainer describe them, not tax or financial advice about any property or purchase. The ATO’s page on the negative gearing and CGT reform is the place to check, and a registered tax agent can advise on a particular return. Figures in the example are illustrative.
First, the property has to be held to earn rent
A loss only exists if the expenses are deductible, and for that the property must be rented out or available to rent on commercial terms. The ATO gives signs on each side.
Signs it is available on commercial terms
- It is advertised in ways that reach a broad field of possible tenants.
- The rent and other terms are like those of comparable properties nearby.
- Requests to rent it are actively monitored.
Signs it is not
- It is blocked out for the owner, or for family and friends at less than market rates, when rental demand is likely.
- Requests aren’t monitored, or interested people are turned away without adequate reasons.
The ATO reads those signs as showing no genuine intention to earn rent, and perhaps another purpose, such as keeping the place for personal use. A room in the owner’s own home is not available on commercial terms on the days it sits empty.
Three situations narrow the claim further. A holiday home that is also rented supports ownership and use expenses only if it is used, or held for use, mainly to produce rent, although costs that relate only to renting it, such as listing fees, management fees and cleaning after a tenant leaves, stay deductible. Where family pay less than market rent, the expenses are apportioned for the private use, and the ATO treats capping the deductions at the rent received as a fair way to do it. And in most cases the cost of holding vacant land can’t be claimed.
Travel, since 1 July 2017
From 1 July 2017, travel costs relating to a residential rental can’t be deducted unless the owner is in the business of letting rental properties, or is what the ATO calls an excluded entity. Travel here covers car costs, fares, accommodation and meals for trips to inspect or maintain the property, or collect the rent.
Few owners are in that business: owning one or several rentals generally doesn’t make one. The ATO says most are investors, even with more than one rental, because they have little involvement in the renting and still rely on income from elsewhere, like a job. Its signs of a business are significant size and scale, significant hours, extensive personal involvement, and a business-like way of planning and running the activity.
Before buying, two costs are out: travel to inspect a property, and a seminar on finding one to invest in, which the ATO says comes too soon before the income-producing activity starts.
From 1 July 2027, decided by the purchase date
The Budget’s tax explainer sets out the transition. For an established residential property, the date it was bought decides whether it can still be negatively geared.
| The property | Up to 30 June 2027 | From 1 July 2027 |
|---|---|---|
| Established, held at 7:30pm AEST on 12 May 2026, including where a contract was signed but not yet settled | Can be negatively geared. | Can still be negatively geared, in future years until it is sold. |
| Established, bought between the announcement and 30 June 2027 | May be negatively geared during this period. | Not negatively geared. |
| Established, bought from 1 July 2027 | Not yet bought. | Not negatively geared. |
| A new build, bought at any time | Can be negatively geared. | Can still be negatively geared. |
Not negatively geared does not mean the loss disappears. From 1 July 2027, losses on existing residential investment properties bought from 7:30pm AEST on 12 May 2026 can be deducted only against other income from residential properties, including capital gains, and any excess is carried forward to offset residential property income in later years. The change applies to individuals, partnerships, companies and most trusts. It touches residential property only: commercial property and other assets, such as shares, stay under the existing rules. The explainer adds that further exemptions from the change will be available for private investors who support government housing programs, for example by providing affordable housing.
What counts as a new build
The explainer describes new builds as homes that genuinely add to supply, including dwellings built on vacant land, or existing properties demolished and replaced with more dwellings. A knock-down rebuild or a substantial renovation that adds no supply does not qualify. The explainer adds that a new build can’t have been sold before, unless the builder first owned it and it was not occupied for more than 12 months. The law leaves the exact requirements for a new build to the Minister, who sets them by legislative instrument.
One loss, either side of the date
Illustrative example, not a real caseAn established house bought in August 2026 earns $26,000 of rent in a year, against $32,000 of deductible expenses, $24,000 of them interest. That is a net rental loss of $6,000. The owner also earns a salary and has no other residential property income.
Up to 30 June 2027
Bought between the announcement and 30 June 2027, the house may be negatively geared during that period, so the $6,000 can be claimed against the salary.
From 1 July 2027
A $6,000 loss in a later year can be set only against residential property income, which this owner doesn’t have, so on these facts the whole $6,000 carries forward to a year when there is some, such as a capital gain on a sale.