What Are Negative Gearing and Capital Gains Tax?
What is negative gearing?
Negative gearing is a property investment strategy that happens when the cost of owning an income-producing asset is higher than the income it brings in. In a property context, this usually means your rental income from an investment property is not enough to cover your property-related expenses, such as loan interest, council rates, repairs, maintenance, insurance, property management fees, and other deductible holding costs. For example, if your Canberra investment property earns $32,000 in annual rent but your deductible expenses total $40,000, the property has created an $8,000 rental loss for that financial year. Under the current tax settings, that loss may generally be used to reduce other taxable income, such as salary and wages, which is why negative gearing has been such a widely discussed part of Australia’s property investment system. In simple terms, it is like carrying a bucket that leaks a little bit of cash each year, but investors accept the short-term leakage because they hope the property will grow in value over time and deliver a stronger long-term return.
More information：https://treasury.gov.au/review/tax-white-paper/negative-gearing
What is Capital Gains Tax?
Capital Gains Tax, usually shortened to CGT, is the tax that may apply when you sell or dispose of an asset for more than it cost you. For Canberra property investors, this usually becomes relevant when an investment property is sold and the sale price is higher than the property’s cost base, which can include the purchase price and certain ownership or selling costs, depending on the situation. In plain English, CGT is not something you usually pay just because your property has gone up in value on paper; it generally becomes an issue when a CGT event happens, such as selling the property, transferring it, or otherwise disposing of it. That is why many investors do not think about capital gains tax every year in the same way they think about rent, interest, maintenance, or property management costs. It is more like a tax checkpoint at the end of the investment journey: while negative gearing affects the holding period and annual cash flow, Capital Gains Tax affects what happens when the asset is eventually sold and a profit is realised. Under the current Australian tax system, CGT is also not a separate standalone tax; the net capital gain is generally included in assessable income and taxed as part of the investor’s income tax position for that financial year.
A simple way to picture CGT is to imagine your investment property as a long-term project. You buy it, hold it, rent it out, pay expenses, maybe renovate it, and then one day you decide to sell. If the final selling price is higher than your adjusted cost base, the difference may be treated as a capital gain, while a sale below the relevant cost base may create a capital loss that can usually be used to reduce capital gains rather than ordinary salary income. For example, if a Canberra investor bought a rental property for $700,000 and later sold it for $900,000, the starting point might look like a $200,000 gain before considering eligible costs, exemptions, discounts, or tax rules that may apply. This is where record keeping becomes important, because costs such as legal fees, agent commissions, and capital improvements may affect the final calculation, which means CGT is not always as simple as “sale price minus purchase price”.
More information: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/what-is-capital-gains-tax
What Are the Proposed Negative Gearing Changes?
At 7:30 pm AEST on 12 May 2026, the Australian Government announced proposed changes to negative gearing as part of its broader housing tax reform package. Under the proposed policy, from 1 July 2027, negative gearing for residential property would generally be limited to new builds that genuinely add to housing supply. This means many investors who purchase established residential investment properties after the announcement time may no longer be able to use rental losses from those properties to reduce other taxable income, such as salary and wages. Instead, those losses may generally be quarantined within the residential property investment system, where they can be used against residential property income, including rental income or future residential capital gains, or carried forward to future years. Properties already held before 7:30 pm AEST on 12 May 2026 are expected to be exempt from the negative gearing changes, which means existing landlords may continue under the previous arrangements while they keep those properties. For Canberra property investors, the biggest impact is that future investment decisions may become more sensitive to cash flow, rental yield, interest costs, and whether the property is an established home or a new build. In other words, the proposed reform does not remove every property deduction, but it changes how useful rental losses may be for many future buyers of established investment properties.
What Are the Proposed CGT Changes?
What does inflation-adjusted indexation mean?
Inflation-adjusted indexation sounds technical, but the basic idea is actually quite simple: it adjusts the original cost of an asset to reflect inflation before calculating the taxable capital gain. Under the current CGT discount system, eligible individuals and trusts that hold an asset for more than 12 months can generally reduce the capital gain by 50% before it is included in taxable income. Under the proposed CGT changes, from 1 July 2027, that fixed 50% discount would be replaced with a method that adjusts the asset’s cost base by inflation, using the Consumer Price Index (CPI) as the reference point. CPI is widely used in Australia to measure household inflation because it tracks changes in the price of a basket of goods and services over time, so it gives a practical way to estimate how much the purchasing power of money has changed. For Canberra property investors, this means the tax system would no longer simply ask, “How much did the property go up by?” It would ask a more specific question: “How much did the property increase after allowing for inflation?” In other words, if you bought an investment property years ago for $700,000, the tax calculation would not only look at that original $700,000 figure; it would consider what that cost base is worth after inflation adjustment, then tax the real capital gain above that amount. This is why people often describe indexation as a way of separating “real growth” from “inflation growth”, like wiping fog off a window so you can see the clearer picture underneath. The proposed reform is designed to apply to gains accruing after 1 July 2027, while assets held before that date may need transitional treatment that separates gains made before and after the start date.
CGT Change Calculator: https://www.stockspot.com.au/cgt-calculator/
Why These Changes Matter for Canberra Property Investors
For Canberra property investors, the proposed negative gearing changes mean future investment decisions may need to rely more on the property’s actual cash flow. If rental losses from some newly purchased established properties can no longer reduce salary and wages from 1 July 2027, investors may need to look more carefully at rent, loan interest, repairs, insurance, strata fees, and property management costs before buying.
Eligible new builds may receive more favourable treatment under both negative gearing and CGT rules. This may make newly built apartments, townhouses, and house-and-land packages more appealing to some investors. However, investors still need to consider purchase price, location, build quality, rental demand, and long-term resale value.
Established properties can still be good investments, especially in Canberra suburbs with strong tenant demand and long-term growth potential. However, if tax benefits become less flexible for future purchases, investors may need to focus more on rental yield, vacancy risk, maintenance costs, and capital growth. A property that only works because of tax deductions may need closer review.
The proposed CGT changes may make it more important for investors to keep clear records of purchase costs, legal fees, agent fees, renovations, improvements, and valuations. These details can affect the final capital gain calculation when the property is sold. For long-term investors, good record-keeping may help avoid confusion later.
Tax rules are only one part of the investment decision. For Canberra investment property owners, local rental demand, achievable rent, vacancy risk, tenant expectations, and property presentation still matter. A rental appraisal, Canberra assessment or advice from a property management Canberra team can help investors understand whether the property is likely to perform well in the local market.
FAQs
How will the CGT changes affect property investors?
The proposed CGT changes would replace the current 50% CGT discount with inflation-adjusted cost base indexation for many eligible investors from 1 July 2027. This means the cost base of an asset would be adjusted for inflation before calculating the real capital gain. A 30% minimum tax rate would also apply to real capital gains accruing from 1 July 2027. For assets already held before that date, transitional rules may apply, separating gains made before and after the start date.
Will existing investment properties be affected?
Existing investment properties purchased before 7:30pm AEST on 12 May 2026 are expected to be grandfathered. This means landlords who already held an established residential investment property before the announcement time may continue to use the previous negative gearing arrangements while they keep that property. However, investors should still seek professional tax advice before making decisions about selling, refinancing, or purchasing another property.
Do the CGT changes apply when I sell my main residence?
In most cases, your main residence remains exempt from CGT if it meets the usual eligibility rules. The proposed CGT changes are more relevant to investment properties and other CGT assets. However, if a property has been used partly for income-producing purposes, or if it was not always your main residence, investors should seek tax advice before selling.
Should Canberra investors consider new builds because of the changes?
Eligible new builds may become more attractive for some Canberra property investors under the proposed negative gearing and CGT changes, because they may continue to receive more favourable tax treatment than many newly purchased established properties. However, tax treatment should not be the only reason to choose a new build. Investors still need to consider the property’s location, purchase price, rental demand, build quality, body corporate fees, vacancy risk, and long-term resale potential. A new build may offer tax flexibility, but it still needs to make sense as a property investment. Before making a decision, investors should compare the tax position with the local rental market and seek professional tax advice based on their personal circumstances.