The Great Australian Dream Part 2: The Negative Gearing Shake-Up

Mia: Welcome to the podcast, our newsletter made easy. Please note, this podcast features AI-generated voices for your hosts, Mia Taylor... Leo: and Leo Baker, bringing you expert insights from the team at Aevum Accounting. Each week, we're here to help you confidently navigate the ins and outs of Australian tax, whether it's for your individual finances or the complexities of your business. Mia: We'll cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. Leo: So, if you're looking to understand your obligations, maximize your financial position, or simply gain clarity on your money matters, you're in the right place. Let's get started with our review of the week! Mia: This week's review comes from Laura, who left us a glowing five-star review. She wrote: the whole team is exceptional. They're highly knowledgeable, responsive, and make complex financial matters easy to understand. I always feel confident knowing my business finances are in capable hands. Highly recommend their services to anyone looking for a reliable and professional accountant. Leo: Thank you, Laura, and honestly, "making complex financial matters easy to understand" is exactly the brief today. Because we're talking about one of the biggest assets so many of our clients own: their investment property. Mia: It's the great Australian dream, isn't it? Buy a place, rent it out, watch it grow. But here's the thing, the government has just changed the rules of that game, halfway through the match. So today, we're back on the property ladder for The Great Australian Dream, Part 2. Leo: Back in Episode 15, we wrote the owner's manual for that money-making machine, the deductions, the depreciation, the capital gains basics. But the 2026-27 Federal Budget has just taken a big red pen to one chapter in particular: negative gearing. Mia: So to unpack what's changed, and what it means for your next move, we've brought back our resident tax strategist, Harvey Green. Welcome back, Harvey! Harvey: Thanks, guys. Honestly, this is the biggest shake-up to property investing in a generation. And here's the headline for anyone listening: if you're about to buy, the timing of when you sign now matters just as much as the property you're signing for. Mia: Before we get to the new rules, let's do a quick recap of the Part 1 essentials. Leo, what did we cover back in Episode 15? Leo: We walked through the whole lifecycle of an investment property. On the income side, you declare the rent, plus things like insurance payouts and any tenant reimbursements you keep. Mia: And on deductions, loan interest is the big one, plus council and water rates, land tax, landlord insurance, and strata. Borrowing costs are spread over five years. And there's the classic trap: a repair, like fixing a broken fence panel, is deductible now, but an improvement, like a whole new fence, is capital. Leo: We also covered depreciation, capital works at two and a half percent a year on the building, and the rule that you can't claim depreciation on second-hand plant and equipment that came with a property bought after May 2017. Harvey: All still true, and all still important. But here is what's new, and the headline is negative gearing. Mia, do you want to remind everyone what negative gearing actually is? Mia: Of course. A property is negatively geared when your deductible expenses are more than the rent you bring in, so it runs at a loss. Up until now, you could use that loss to reduce the tax on your other income, like your salary. Harvey: Exactly, and that last part is what's changing. From the 1st of July 2027, if you own an established residential property that you bought after seven thirty in the evening on budget night, the 12th of May 2026, those rental losses can no longer be offset against your salary. They can only be offset against rental income or capital gains. Leo: So the loss doesn't just vanish, where does it go? Harvey: It gets sent to its room. We call it quarantined. That loss can't go out and reduce your salary anymore, it sits in the corner until you've either got rental profit, or you sell the place and make a capital gain. Only then is it allowed back out. Mia: Grounded losses, I love it. Alright, let's put some numbers on it, because that always makes it click. Harvey: Let's take two investors, Sarah and John. Sarah buys a twenty-year-old established house. The rent doesn't cover the mortgage, so it runs at a fifteen thousand dollar loss for the year. Under the new rules, Sarah cannot use that loss to reduce the tax on her salary, it is quarantined until she sells. John, on the other hand, buys a brand-new, off-the-plan apartment. Because the government wants to stimulate new construction, new builds are exempt, so John can still use his fifteen thousand dollar loss to reduce his taxable salary right away. Leo: So the established-versus-new-build distinction is everything now. Harvey: It is the single most important factor. New builds keep the full benefits, negative gearing and the capital gains discount. Established properties bought after the cut-off lose the salary offset. Mia: What about people who already own an investment property? Are they about to lose their negative gearing? Harvey: No, and this is the reassuring part. Existing properties are grandfathered. If you acquired the property, or you were already under contract, before that budget-night cut-off, the current rules keep applying for as long as you hold it. Leo: But the moment they sell, that grandfathering is gone. Harvey: Correct. The grandfathering attaches to the property in your hands. Sell it, and the next buyer is under the new regime if it's an established home. Mia: Now, there's a second change that comes in on the very same day, isn't there, capital gains tax. Harvey: Yes, and this one reaches well beyond property. From the 1st of July 2027, the fifty percent capital gains discount is being replaced. Instead of halving your gain, you adjust your cost base for inflation, that's indexation, and then pay a minimum of thirty percent tax on the resulting gain. Leo: And that's not just property? Harvey: No. It applies to all assets for individuals, shares, exchange-traded funds, even cryptocurrency. The one carve-out for property is, again, new builds, eligible new builds keep the fifty percent discount. Mia: So the government is really steering investors toward new construction, on both negative gearing and capital gains. Harvey: That is the whole design. Reward new supply, and cool demand for established housing. Leo: Alright, myth-busting time, because there is a lot of misinformation flying around the barbecues right now. Myth number one: negative gearing is dead and buried. Harvey: Not true. It has been restricted, not abolished. It is only the salary offset, on established properties bought after the cut-off, that's affected. Existing owners keep it, and new builds keep it in full. Mia: Myth number two: my current investment property is about to lose its tax benefits. Harvey: Also not true, if you bought before budget night. You are grandfathered. The change does not touch properties already held under the old rules. Leo: Myth number three: these changes are already in force, so it's too late to do anything. Harvey: The rules start on the 1st of July 2027, but here is the catch that trips people up. The acquisition cut-off was budget night, the 12th of May 2026, and that has already passed. So any established property you buy today is already on the new side of the line for when the rules switch on. Mia: And the last one, myth number four: it only affects property investors. Harvey: Wrong. The capital gains change hits everyone with assets. If you have been building a share or crypto portfolio, your gains after the 1st of July 2027 are caught by that new thirty percent minimum too. This is a whole-of-portfolio issue, not just a property one. Mia: So what should our listeners actually do right now? Harvey: A few things. If you are about to buy an established investment property, do not sign a contract before you talk to your accountant, you need to model the after-tax numbers under the new rules. If you are considering new construction, factor in that it keeps both the negative gearing and the capital gains discount. And if you already own, understand exactly where your grandfathering sits before you think about selling or restructuring. Leo: It really is a case where the right advice, before you act, can be worth tens of thousands. Mia: Exactly. If you own an investment property, or you're planning your next purchase, don't guess your way through this. Head over to aevumaccounting.com.au and book a property tax planning session with the team. They'll model your position under the new rules and make sure your next move is the right one. Leo: And whatever you do, don't sign anything on an established property until you've had that conversation. Mia: Couldn't agree more. Leo: Thank you for joining us for Episode 48! We hope today's discussion has helped make sense of a genuinely seismic change for property investors. Mia: Before we go, a quick but important reminder. The information shared today is for general informational purposes only, and does not constitute specific tax or financial advice. Leo: Everyone's situation is unique, and tax laws are complex. For personalized advice tailored to your situation, we always recommend consulting with a qualified professional. Mia: Until next time, stay savvy, stay proactive... Leo: And keep building your financial future!