How Negative Gearing Works: Why New Property Is Receiving More Attention

Why read this article

Understand how negative gearing works, why new property is receiving increased attention, and the factors many investors are considering following the proposed Federal Budget changes.

• Learn how negative gearing works in Australia.
• Understand why many investors are reassessing established versus new property.
• Discover the features that make new residential property attractive to some investors.

Negative gearing has long been one of the most widely discussed concepts in Australian property investment. Traditionally, investors have been able to offset losses from an investment property against their taxable income, helping reduce the overall cost of holding an asset. For many investors, this has formed part of a broader long-term approach to property ownership.

However, proposed changes announced as part of the 2026 Federal Budget have shifted attention towards new residential property. Subject to legislation, eligible new properties are intended to receive different treatment compared with many established properties, reflecting the Government’s objective of increasing housing supply. While existing arrangements are proposed to be grandfathered for many current investors, these changes have prompted some investors to reassess how negative gearing works and where future opportunities may exist.

What Is Negative Gearing?

Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates. Expenses such as loan interest, rates, insurance, management fees, maintenance and depreciation may create a taxable loss. Subject to current legislation and individual circumstances, that loss may be used to offset other taxable income, reducing the amount of tax payable.

For this reason, some investors may be prepared to accept a manageable short-term cash flow position in exchange for owning an asset that may provide rental income and form part of a broader long-term approach to property ownership.

Why Many Investors Are Considering New Property

Following the proposed Federal Budget measures, many investors are taking a closer look at new residential property.

Proposed Negative Gearing Treatment
Subject to legislation, eligible new residential property is intended to receive different treatment compared with many established properties. These proposed measures have prompted some investors to take a closer look at new residential property and are intended to support additional housing supply.

Supply and Demand Fundamentals
The proposed Federal Budget measures are intended to encourage additional housing supply at a time when Australia continues to experience strong population growth and housing shortages. These conditions have led some investors to take a closer look at new residential property and the role it may play in helping address future housing demand. Many investors consider supply and demand fundamentals, population growth, infrastructure investment and rental demand when researching locations and property types.

Depreciation Allowances
New properties generally provide greater depreciation opportunities than older homes. These deductions may assist after-tax cash flow during the early years of ownership.

Lower Maintenance Costs
Because fixtures, fittings and appliances are new, repair and maintenance expenses may be lower in the initial years, providing greater certainty around holding costs.

Builder Warranties
New homes are generally covered by statutory builder warranties, providing additional protection that is typically unavailable with older properties.

Rental Demand Considerations
Modern layouts, energy-efficient features and contemporary finishes can support rental demand and broaden the range of potential tenants.

 

Practical Example*

Imagine an investor earning $100,000 per year purchases a new $700,000 investment property using a $560,000 loan at 6.00% interest.

Annual Expenses

• Interest costs: $33,600
• Property management and maintenance: $6,200
• Rates and utilities: $5,500
• Insurance: $1,600
• Miscellaneous expenses: $800
• Depreciation and capital allowances: $12,000

Total expenses: $59,700

Rental income received: $28,000

This produces a taxable loss of approximately $31,700.

 

Based on 2024–25 tax rates, this may reduce taxable income from $100,000 to approximately $68,300 and may result in a reduction in tax payable of around $10,350, depending on individual circumstances.

Cash expenses excluding depreciation total approximately $47,700.

After allowing for rental income and the reduction in tax payable, the residual out-of-pocket cost is approximately $9,350 per year, or around $180 per week, although actual results will vary depending on individual circumstances.*

 

Things to Consider

Negative gearing should not be viewed as a reason to purchase a property on its own. Borrowing capacity, interest rates, holding costs, rental demand, property selection and personal circumstances should all be considered. Tax outcomes vary and legislation may change over time.

As with any investment, property values and rental returns can move up or down and no particular outcome is guaranteed. Understanding the fundamentals of the property itself is often just as important as understanding the tax treatment.

How Accrue Real Estate Helps

Accrue Real Estate focuses on new residential property and helps clients understand the factors that influence property markets and ownership considerations. Our team researches locations across Australia, considering supply and demand fundamentals, population growth, infrastructure investment and rental demand when assessing opportunities. We also help clients understand how proposed changes to negative gearing and other property-related considerations may affect the market, while working alongside experienced mortgage brokers, accountants and other professionals who can provide specialist advice appropriate to individual circumstances.

With more than 15 years of experience and thousands of property transactions, Accrue Real Estate focuses on research, due diligence and informed decision-making rather than speculation or short-term market noise. By specialising in new residential property, we help clients better understand changing market conditions and the factors that may influence long-term property ownership.

Calculation Note

The example provided in this article is illustrative only and assumes a new $700,000 investment property financed with a $560,000 loan at 6.00% per annum interest. Expense assumptions are indicative only and are based on typical holding costs associated with Australian residential property. Tax calculations are based on the 2024–25 Australian financial year using information published by the Australian Taxation Office (https://www.ato.gov.au). Depreciation assumptions are indicative only and may vary depending on the property, construction date and quantity surveyor assessment. References to economic conditions and property-related data have been informed by publicly available information published by the Reserve Bank of Australia (https://www.rba.gov.au). Figures are general in nature, do not represent expected outcomes and should not be relied upon as personal financial, taxation or investment advice.