How investment property cash flow works — and what changes in 2027
An investment property's tax position comes down to one subtraction: rental income minus deductible expenses. Where expenses (interest, rates, insurance, management fees, repairs, depreciation) exceed the rent, the property is negatively geared and the loss has, until now, been deductible against your other income including wages. Where rent exceeds costs, it's positively geared and the surplus is taxed at your marginal rate.
The Budget 2026-27 reform — the biggest change since 1985
From 1 July 2027, losses on established residential investment properties will no longer be deductible against salary and wages. Instead, those losses remain deductible against other residential property income — including capital gains on residential property — with any excess carried forward to future years rather than reducing your salary and wages. Two things soften it: properties owned before 7:30pm AEST on 12 May 2026 (Budget night) are fully grandfathered and keep current treatment, and new builds retain full negative gearing regardless of purchase date. Properties bought between Budget night and 1 July 2027 fall under transitional rules.
The capital gains side also changes
The 50% CGT discount for individuals, partnerships and trusts is being replaced from 1 July 2027 with an inflation-based discount on gains accruing from that date, alongside a separate 30% minimum tax on real capital gains. New-build investors can elect between the old 50% discount and the new arrangements. Gains accrued before that date keep the 50% discount under split-treatment rules, and the main residence exemption is untouched. For anyone modelling a hold-and-sell strategy past 2027, the after-tax exit number is materially different from the old rule of thumb.
What this means for the numbers on this page
A pre-Budget-night purchase can still be modelled the traditional way. For anything bought later, treat a negative-gearing tax refund as temporary rather than permanent, and check whether the property is new or established — that single distinction now changes the cash flow more than a 0.5% rate move does.
Frequently asked questions
Does the change apply to commercial property? The announced reform targets established residential investment property. Commercial and new-build residential are treated differently — check your circumstances with a tax agent.
Do I lose the losses entirely? No. Post-reform losses aren’t forfeited — they remain available against residential property income and capital gains, carrying forward to later years, so the benefit is deferred rather than deleted.
Is depreciation still claimable? Yes — capital works and eligible plant deductions continue, though for second-hand residential plant the 2017 restrictions still apply.