Get up to speed on negative gearing

Negative gearing gets talked about a lot in debates about housing and the federal budget, but it is not always explained all that clearly. Here we’ll go through what it means, why some investors use it, how the rules changed in the 1980s, why capital gains tax keeps coming up, and why the issue is back in focus ahead of the 2026 federal budget.

Why is negative gearing back in focus?

One reason negative gearing has become such a live issue is that it’s not just a technical tax topic. It now sits inside a wider debate about housing affordability, whether younger Australians have a fair shot at home ownership, and whether the tax system is giving investors too much of an edge over people trying to buy a home to live in.

The Senate set up a select committee in November 2025 to examine the capital gains tax discount and related issues, and when it reported in March 2026 it said there was evidence that the capital gains tax discount, together with negative gearing, had shifted housing ownership away from owner-occupiers and towards investors, with implications for intergenerational inequality.

That helps explain why the issue keeps returning. As CommBank’s 2026 federal budget preview notes, the government is framing the current discussion about negative gearing around housing and intergenerational equity, and not just tax. Whether or not any changes are announced this budget, that is a big part of why the debate has become so prominent again.

What does negative gearing actually mean?

Surprisingly, according to the federal Treasury, you won’t find the phrase “negative gearing” in tax legislation.

But in everyday terms, it describes a situation where the costs of holding an income-producing asset are greater than the income that asset brings in. In investment terms, “gearing” means using borrowed money to make an investment, so an investment becomes “negatively geared” when the income it brings in is less than the interest and other costs of holding it.

As well as property, the term can also apply to shares and other investments. Because Australia’s personal tax system generally taxes net income, a negatively geared investor can usually deduct investment losses against other income, such as salary and wages.

For example:

• Someone might buy an investment property that brings in $30,000 a year in rent
• But its costs $38,000 a year to hold the property once interest and other deductible expenses are counted.
• So that investor is $8,000 out of pocket for the year, and some of those costs may be tax deductible.

The same basic idea can apply outside housing too. If someone borrows to buy shares and the income from those shares is lower than the costs of holding them, that can also be a negatively geared investment.

Why would anyone want to lose money like that?

At first glance, it can sound backwards to buy an investment that loses money.

But some investors are not just looking at what an asset earns in a given year. They may be willing to wear a loss for a time if they think the asset will rise in value over the long term, or if they expect the income made from it to improve.

For example, someone might buy an investment property that costs more to hold than it brings in today, hoping rents will rise over time and the property will be worth more when they eventually sell it. The same thinking can apply to shares and other investments.

For some investors, the tax deduction also matters. If the investment makes a loss, that loss can reduce their taxable income in the meantime, which can make it easier to carry. That does not necessarily mean the investment is only about tax, but it helps explain why some people are prepared to lose money on the way through if they expect to come out ahead later.

Why does capital gains tax keep coming up when people talk about negative gearing?

If an investor is prepared to lose money while holding an asset, the tax treatment of the eventual gain they make matters a lot.

Australia’s tax system is designed to allow for inflation when taxing capital gains, so that only “real” gains are taxed. But the way that has been done has changed over time. In 1999 the rules changed from allowing a tax discount based on indexed inflation to a broad 50 per cent discount for eligible gains. It’s this 50 per cent discount that sits at the centre of the current debate about housing, even though it applies to investments more broadly.

That is why, in both policy and politics, negative gearing and capital gains tax tend to be discussed together. In the property market, the argument is usually about the mix: the ability to deduct the full loss while an asset is being held, followed by discounted tax on an eligible capital gain when it is sold.

What’s the history of negative gearing?

The short version starts in the mid-1980s. Capital gains tax began in 1985, and negative gearing changed around the same time. In 1985 losses on rental properties bought after 17 July that year were quarantined, meaning those losses could not be used to reduce tax on other income straight away. Instead, they could be carried forward against future rental profits and capital gains. That restriction was reversed from 1 July 1987.

There was, and still is, some debate about whether the change to negative gearing pushed up rents in Sydney and Perth at the time.

What are the main arguments for and against negative gearing?

The argument for keeping the current approach usually starts with a simple tax principle. Australia’s personal tax system usually taxes net income, not gross income, so genuine costs of earning income are generally deductible. Supporters of the current settings also argue property should not be singled out if similar principles apply to other investments, and some say changing the rules could make it harder to attract rental investment in a market that already has supply problems.

The argument for changing negative gearing starts from a different point. Some argue housing is too important to be treated like any other asset class and the Senate committee examining the CGT discount said there is evidence that the combination of the CGT discount and negative gearing has pushed ownership away from owner-occupiers towards investors. An earlier Senate housing report heard evidence that these settings can favour investors over first home buyers and widen intergenerational gaps.

What’s being discussed ahead of the 2026 federal budget?

At the time of publishing, there is still no publicly confirmed package of negative gearing or capital gains tax changes in the 2026 federal budget. Speaking recently on the CommBank View podcast, the Treasurer said the government is working through longer-term tax issues including negative gearing and capital gains tax, but has not yet signed up to a particular model.

What is clear though is that change is being openly discussed. CommBank’s budget preview expects changes to both negative gearing and capital gains tax, and says media commentary has shifted the discussion towards broader options including a return to CGT indexation across asset classes. The Senate committee report’s reform chapter also shows the main ideas in play, including reducing the 50 per cent CGT discount, returning to indexation, treating housing differently from other assets, and quarantining losses so they can only be used against income from the same investment or class of investments.

What should we watch for on budget night 2026?

If changes to negative gearing or capital gains tax are announced, the details will matter more than the headline.

Key questions will be

• Whether any change applies only to housing or more broadly,
• Whether it affects only future investments or also existing ones,
• Whether new housing is treated differently from existing homes,
• Whether capital gains tax changes alongside negative gearing.

Those details will shape the extent to which the policy affects revenue, housing affordability and investment behaviour.

Negative gearing has been part of Australia’s tax debate for decades, but the current conversation is about how those settings shape the housing market, and whether they still reflect the balance the country wants between investment, fairness and home ownership.