The biggest version of "claim a cost against your salary" — and the most over-sold. Here's how it really works, with every cost on the table.
What changed in 2026: negative gearing is now mainly for new builds
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 — law from 26 June 2026 — limits negative gearing to newly built homes:
New builds keep full negative gearing — the loss still reduces your salary, and you can still use the 50% CGT discount.
Established (second-hand) homes bought after 7:30pm AEST, 12 May 2026 — from the 2027–28 financial year the rental loss no longer reduces your salary. It's quarantined and carried forward, only offsetting future rental income or the capital gain when you sell.
Already own one (or were under contract before budget night)? You're grandfathered — nothing changes until you sell.
The 50% CGT discount is also being replaced from 1 July 2027 — with cost-base indexation plus a 30% minimum tax on the real gain (new-build investors can choose the old 50% or the new method).
1The idea
When a rental property's costs — mostly loan interest plus depreciation — are more than its rent, it runs at a loss. That loss is deductible against your salary, so the ATO shares it at your marginal rate. That's "negative gearing" — though since the 2026 reform that salary deduction applies only to a new build (or a home you already owned); a newly bought established home has its loss quarantined instead.
But here's the part the ads skip: the refund is not the wealth. It only softens the cost of holding the property. The actual wealth is the property's capital growth, after CGT — and that's a leveraged bet that only pays if the property actually grows.
2Who it's for
You have borrowing capacity and stable income, and can fund a real monthly shortfall.
You can hold for the long term — through rate rises and flat years — without being forced to sell.
It's not for the cash-stretched, the short-term, or anyone buying purely for the tax refund.
3The worked example
A $900k place, $750/wk rent, 6.2% interest, 4% growth, on a $140k salary:
Real net cost to hold (after refund)−$8,906/yr · ~$742/mo
After-tax result over 10 years+$246,164
…of which the tax refund is~2%
Net return per year (avg, after all costs)+$24,616/yr
Read that last line twice: about 98% of the gain is property growth, not the refund. Negative gearing makes a growing asset cheaper to hold — it doesn't make a flat one a winner.
This salary-offset example assumes a new build (or a property you already owned). For a newly bought established home, switch the toggle below to "Established" — the loss is quarantined, not refunded against your salary.
You fund this every month. The tax refund only comes back once a year, after you lodge.
Ease the monthly squeeze: a PAYG withholding variation lets the ATO reduce the tax taken from each pay, so you get the benefit fortnightly instead of waiting for a year-end refund — about $742/mo net.
The year in full
Rent+$39,000
Interest + costs−$55,670
You fund (cash)−$16,670 · $1,389/mo
Tax refund (at tax time)+$7,764
Net cost for the year−$8,906 · $742/mo
Over 10 years
Property value$1,332,180
Gross gain+$432,180
CGT on exit−$96,956
Net holding cost (10 yrs)−$89,060
After-tax result+$246,164
Net return per year (avg, after all costs)+$24,616/yr
The net return is after CGT and all holding costs, and is mostly property growth (a leveraged bet), not the tax refund. Simple average, not a compound IRR. On a P&I loan you'd fund more each month. Ignores stamp duty & selling costs. Estimates only, not personal advice.
5The honest caveats
Established homes bought after 12 May 2026 lose the salary refund from 2027-28. The loss is quarantined — it only offsets future property income or the capital gain. New builds keep the deduction.
The refund is your marginal rate of the loss, not 100%. Losing money to get a third of it back is not a win on its own.
Principal repayments aren't deductible, and depreciation you claim is clawed back into a bigger capital gain when you sell.
Leverage cuts both ways. Weak growth, a vacancy, or a rate rise can turn the bet negative. The monthly out-of-pocket is real and due every month.
6How to action it
Model it honestly first — make the growth assumption conservative and check you can fund the monthly cost.
If you buy, get a depreciation schedule from a quantity surveyor to claim everything you're owed.
Consider a PAYG withholding variation to spread the benefit across each pay — and get ownership/structure advice before you sign.
General educational information, not personal tax or financial advice. The 2026 reform (negative gearing limited to new builds; the 50% CGT discount being replaced from 1 July 2027) has significant detail and transitional rules — the calculator's CGT figure is a simplified estimate. Confirm your specifics with a registered tax agent or at ato.gov.au. Figures are estimates for FY2025-26.
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