Key points:
- The Federal Budget’s changes to negative gearing and capital gains tax are likely to accelerate a shift away from tax-driven property investing and toward investments that deliver stronger underlying returns.
- With fewer tax benefits available on loss-making properties, investors will place greater emphasis on rental yield, cash flow and the ability of an asset to support itself financially.
- Positive gearing is expected to play a larger role in investment strategies as investors focus on generating sustainable income rather than relying on future tax concessions.
The Australian Federal Government’s 2026-27 Budget has marked one of the most significant shifts in investment taxation in decades. While headlines have focused on changes to negative gearing and capital gains tax, these reforms also bring a renewed spotlight onto an alternative strategy: positive gearing.
For many investors, understanding positive gearing may be the key to pivoting.
What has changed?
The Government has enacted legislation as part of the 2026-27 Federal Budget that significantly reshapes negative gearing and capital gains tax, with changes applying from 1 July 2027.
Negative gearing is now limited to new residential builds. Investors acquiring established residential property after 12 May 2026 will no longer be able to offset rental losses against salary or other non-property income. Instead, those losses are quarantined and may only be used against other residential property income (including capital gains), with any excess losses carried forward. Importantly, this operates at a portfolio level – meaning losses can still be offset against income or capital gains from other residential properties.
Existing properties held at the time of the Budget announcement are grandfathered.
At the same time, the 50% CGT discount has been replaced with cost base indexation and a 30% minimum tax rate on gains, applying to gains accruing from 1 July 2027.
What this means for investors
Historically, negative gearing has allowed investors to run a property at a loss while reducing their overall tax bill. This has been a key driver of investment decisions for many Australians.
Under the new rules, that dynamic shifts. Investors in established property will no longer benefit from immediate tax relief on losses, reducing the attractiveness of a “loss now, gain later” approach.
This places greater emphasis on investments that can stand on their own financially, without relying on tax offsets.
What is positive gearing (and why it matters now)?
A property is positively geared when its rental income exceeds its expenses (including interest on debt), producing a surplus.
In simple terms: positive gearing means the investment generates income, rather than requiring ongoing cash contributions.
While always a core concept, its relevance is increasing as policy settings move away from supporting loss-making investments.
The shift from tax benefits to cash flow
The direction of policy is clear: less reliance on tax-driven strategies and greater focus on sustainable income and housing supply.
In practical terms:
- Tax deductions are no longer the primary driver of return (for many investors)
- Cash flow and serviceability are becoming more important
- Investment decisions are shifting toward income-generating assets
Positive gearing aligns directly with this shift.
Why positive gearing is increasingly relevant
Positive gearing offers:
- Immediate income rather than deferred returns
- Lower ongoing financial pressure
- Greater resilience in higher interest rate environments
- Improved alignment with evolving tax policy
However, it also comes with trade-offs. Net rental income is taxable, meaning investors may have a higher tax bill compared to negatively geared investments.
How investors are responding
In response, there is likely to be a greater focus on strategies that drive sustainable cash flow rather than relying on tax outcomes. Investors will increasingly look to high-yield locations and asset types, as well as opportunities to add value, such as renovations, secondary dwellings or reconfiguring layout, to lift rental income. Others may seek to optimise how properties are leased or structure their financing to improve overall cash flow, while some will adopt a longer-term view, targeting assets that transition into positive gearing as rents grow over time. Ultimately, the shift highlights a move toward more deliberate, income-focused investing, where performance is driven by fundamentals rather than tax offsets.
Property vs shares: what’s different?
While these changes primarily affect residential property, broader tax reforms (particularly around capital gains) apply more widely across asset classes, including shares and managed investments.
This means:
- Property investors may experience the most immediate behavioural shift
- Investors across all asset classes will need to consider after tax returns more carefully
Final thoughts
The 2026-27 Federal Budget doesn’t eliminate negative gearing; however, it fundamentally changes how and where it can be used.
As a result, we are likely to see a shift in investor mindset:
- From tax driven strategies → to income-driven strategies
- From short term losses → to sustainable cash flow
- From passive reliance on concessions → to more active portfolio structuring
Positive gearing is not a new concept, but in today’s environment, it is becoming a far more central part of the investment conversation.
