Federal Budget: Major changes for Aussie landlords as negative gearing restricted

Current Aussie landlords have been spared a potential budget blow with existing investment properties able to maintain most of the tax advantages of negative gearing as the government ends the arrangement for existing properties in the future.

From July 1, 2027, the federal government is limiting negative gearing for residential property to only new builds. And properties bought from budget night will not be eligible to be negatively geared after that date.

Properties purchased or held prior to tonight’s announcement will be exempt from the changes until they are sold. This includes properties where a contract has been entered into but not yet settled.

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Net rental losses from established residential properties will only be deductible against rent or the capital gains from residential properties.

To avoid disincentivising investments in maintenance and improvement of investment properties, landlords can carry forward loses into future years.

Properties purchased after May 12 and before 30 June 2027 may be able to be negatively geared during this period, but not in subsequent years.

While it will take years for these changes to wash through, and could give rise to the ‘never sell’ investor, the budget papers noted that more than half of negatively geared properties are typically sold or become positively geared within four to five years, and over 75 per cent within ten years.

The negative gearing changes come alongside a return to an inflation-adjusted discount on the tax of capital gains, with the new policy also including a minimum 30 per cent tax rate on capital gains from July 1, 2027.

“In combination with the return to CGT indexation, limiting deductions for rental losses will reduce the tax advantages of leveraged investment in established residential properties,” the budget papers say.

In his speech in Parliament, Treasurer Jim Chalmers said these changes in the budget “make the tax system fairer and stronger for workers, businesses, first home buyers and future generations.”

When asked by ABC host Sarah Ferguson in the wake of handing down the budget if he is happy about the “two tiered” system now created between current landlords who can continue to enjoy negative gearing and new investors, Chalmers said past decisions had to be respected and new landlords could “invest in new supply” to get the benefits.