The 2026 Federal Budget restricts negative gearing on established residential investment property. Here is exactly what changed, who is exempt, and why share-based debt recycling is left untouched.
From 1 July 2027, negative gearing will be restricted for established residential investment property bought after 7:30pm AEST on 12 May 2026. Losses on affected properties will generally be claimable only against rental income or future capital gains, not against your salary, with any excess carried forward. Three groups are exempt: property already held or under contract before budget night, eligible new-builds, and all non-residential assets, which includes shares, ETFs and managed funds. Because most debt recycling is built on shares and ETFs, share-based recycling is not affected by the change.
Home › Guides › The 2026 Budget and negative gearing
The 2026 Federal Budget announced a change to how negative gearing works for one specific category: established residential investment property. Under the current rules, if a geared investment costs more to hold than it earns, that net loss can generally be claimed against your other income, such as your salary, in the same year.
The Budget narrows that treatment for affected properties. From 1 July 2027, losses on an established residential investment property bought after budget night will generally be deductible only against rental income from your investments or against future capital gains when you sell, rather than against your wider income. Where the loss is larger than the income available to offset it, the excess is carried forward to later years rather than lost.
To be precise about what has not changed: the measure targets negatively geared, established residential rental property. It does not touch the deductibility of interest on borrowings used to buy income-producing assets outside that category, and it does not change how debt recycling works.
This is an announced measure, not settled law. Announced tax changes can be amended, delayed or dropped as they pass through Parliament, and the fine detail is often set later in legislation. Treat the points below as the position as announced, and confirm your own circumstances with a registered tax agent before acting.
Two dates do most of the work in this change. Whether a property is caught depends on when it was bought, and the restriction itself does not begin until a later financial year.
The cut-off for purchase. Established residential investment property held, or under a contract of purchase, before this time is not affected. Property bought after it may be.
The start of the restriction. Even for an affected property, the change to how losses are claimed applies from this date, giving the 2027 to 2028 financial year onward as the first period in scope.
In plain terms, an investor who already owned an established rental before budget night sits outside the change. One who buys after that moment needs to plan around losses being ring-fenced to investment income and future gains once the rules commence.
The announcement carved out three groups that keep the current negative gearing treatment. If your position falls into any of them, the change does not restrict you.
| Exempt category | What it covers |
|---|---|
| Owned before budget night | Established residential property held, or already under contract, before 7:30pm AEST 12 May 2026 |
| Eligible new-builds | Newly built dwellings that meet the eligibility rules for the exemption |
| Non-residential-property assets | All non-residential assets, including shares, ETFs and managed funds |
The third exemption is the one that matters most for debt recycling. Shares, exchange-traded funds and managed funds are non-residential assets, so interest on borrowings used to buy them keeps its usual deductibility, and any net loss can generally still be claimed as it is today. The change is directed at established residential rental property, not at the geared share portfolios that most debt recycling strategies are built around.
If your plan leans on negatively gearing an established rental you intend to buy after budget night, the after-tax maths shifts. The annual loss no longer reduces the tax on your salary in the same year. Instead it waits, offset against rental income or held over until a future capital gain, which changes the timing and the value of the benefit rather than removing the deduction outright.
That does not make established property unworkable, and many investors will still hold it for reasons unrelated to the year-one tax position. It does mean the tax tailwind some property strategies relied on is weaker for newly bought established rentals, and worth modelling with your adviser before you commit. Our guide on debt recycling versus negative gearing sets out the broader differences, and our investment property page covers how the lending is structured either way.
Debt recycling converts the non-deductible debt on your home into deductible investment debt. You borrow against your home equity through a clean, separate loan split, use that split to buy an income-producing investment, and redirect the income and any tax refund back at your non-deductible home loan. The deduction comes from the interest on money borrowed to invest, not from running an overall loss.
Most debt recycling is done with shares and ETFs, and those assets sit squarely inside the Budget's exemption for non-residential assets. Nothing in the announced change alters the deductibility of interest on a share-based recycling split, the way redirected income clears your mortgage, or the treatment of a net loss on a geared share portfolio. A strategy built on shares, ETFs or managed funds carries on exactly as before.
This is one reason many of our clients recycle into liquid, income-producing assets rather than residential property. Our shares and ETFs strategy page explains the structure, and our guide on what makes debt recycling interest deductible covers the rules that still apply. We arrange the lending and structure the loan so your deductions stay clean and traceable; your financial adviser recommends the specific assets, and your registered tax agent confirms the tax treatment for your situation.
We structure debt recycling loans and work alongside your adviser and accountant. A short call is the quickest way to see where you stand.
Book a free call →There is no need to rush, but a few steps make sense while the detail is being finalised.
The core message is measured: for share-based debt recyclers, the Budget changes little. For anyone planning to negatively gear a newly bought established rental, it changes the timing and value of the deduction, and is worth planning around.
No. The restriction applies to negative gearing on established residential investment property bought after 7:30pm AEST 12 May 2026, from 1 July 2027. Shares, ETFs and managed funds are exempt, so share-based debt recycling continues as before. Confirm your own position with a registered tax agent.
Generally no. Property held, or under a contract of purchase, before 7:30pm AEST 12 May 2026 is exempt and keeps the current negative gearing treatment. The change is aimed at established residential rentals bought after that time. Your registered tax agent can confirm how it applies to you.
The announced measure targets established residential investment property specifically. All non-residential assets, including shares, ETFs and managed funds, are exempt from the restriction, so interest on borrowings used to buy them keeps its usual deductibility.
It is an announced Budget measure. Announced tax changes can be amended, delayed or dropped as they move through Parliament, and the detailed rules are usually set in later legislation. Treat the points here as the position as announced and seek advice before acting.
How the two differ, where they overlap, and which fits.
Read more → STRATEGYThe exempt, liquid route most of our clients take.
Read more → GUIDEThe rules that make the interest claimable.
Read more →