Many property investors have asked us:
“If rental property losses can no longer reduce my salary income, do I still need to report the property in my tax return?”
The answer is yes.
Under the recent Federal Budget changes, affected rental property expenses are not simply lost or ignored. You must continue reporting the rental income and eligible expenses in your tax return so the net rental loss can be calculated, recorded and carried forward correctly.
What is changing with negative gearing?
From 1 July 2027, net losses from an established residential investment property purchased after 7:30 pm AEST on 12 May 2026 will generally no longer be available to reduce unrelated income such as:
Salary and wages
Business income
Interest income
Dividends
Other ordinary taxable income
Instead, the net rental loss will be quarantined, or ring-fenced, for use against eligible residential property income and gains.
The Government’s Budget factsheet confirms that these losses may still be deducted against other residential property income, including capital gains, and unused amounts may be carried forward to future years. Australian Government – Negative Gearing and Capital Gains Tax Reform
Does this mean rental property expenses are no longer deductible?
No. This is an important distinction.
The changes do not generally mean that legitimate rental property expenses stop being deductible. Eligible expenses—such as loan interest, council rates, strata levies, property-management fees, insurance and repairs—must still be identified and calculated under the normal tax rules.
What changes is when and against what income the resulting net rental loss can be used.
For example, suppose you purchase an affected established residential property and the annual figures are:
Rental income: $35,000
Eligible rental expenses: $50,000
Net rental loss: $15,000
Under the existing negative-gearing rules, that $15,000 loss may reduce your salary or other taxable income.
Under the new rules from 1 July 2027, the $15,000 loss generally cannot reduce your salary. Instead, it is recorded as a quarantined residential property loss and carried forward.
What can quarantined rental losses be used for?
Carried-forward residential property losses may potentially be used against:
Future net rental income
If the property—or another eligible residential rental property—becomes positively geared in a future year, the accumulated losses may reduce that rental profit.
Residential property capital gains
If you later realise a capital gain from a residential property, available quarantined losses may be applied against that gain, subject to the final legislation and applicable tax rules.
Residential rental income from another property
If one residential property produces a loss and another produces a profit, the loss may be available to offset the residential rental income, even though it cannot reduce salary or wages.
Any unused balance can continue to be carried forward. It is therefore essential to maintain accurate tax records every year.
Why must you still report the rental property?
Even when a rental loss does not produce an immediate tax refund, the property must still be reported because your accountant needs to:
Declare the gross rental income
Review and claim eligible rental expenses
Separate repairs from capital improvements
Calculate depreciation and capital-works deductions
Determine the correct net rental profit or loss
Record quarantined losses for future years
Maintain the property’s CGT cost-base records
Substantiate claims if the ATO conducts a review or tax audit
If you fail to report the property or omit eligible expenses, you may lose track of valuable carried-forward deductions and create difficulties when the property becomes profitable or is eventually sold.
A carried-forward loss can accumulate over several years. Although it may not help you maximise your tax return immediately, it could still reduce future tax payable.
Are existing properties grandfathered?
Yes.
Established residential properties held—or already under contract—before 7:30 pm AEST on 12 May 2026 are grandfathered. Subject to the ordinary tax rules, their rental losses can continue to offset salary, wages and other income.
The contract date is therefore critical. It is not simply the settlement date.
Investors should retain:
The signed contract
Evidence of the contract date and time
Settlement statements
Loan documents
Legal and conveyancing invoices
Stamp-duty records
Quantity-surveyor reports
Renovation and improvement invoices
The Budget transitional rules also state that an established property purchased after the announcement but before 1 July 2027 may continue to be negatively geared until 30 June 2027; the restriction then applies from 1 July 2027. Australian Government Budget factsheet
What about genuinely new residential properties?
Qualifying new builds retain access to negative gearing. This means rental losses from an eligible new build may continue to reduce other taxable income, including salary and wages.
However, not every renovated, rebuilt or recently completed property automatically qualifies.
The Government indicates that an eligible new build must genuinely add to housing supply. Examples may include:
A dwelling constructed on vacant land
A newly constructed off-the-plan apartment
A duplex replacing one existing dwelling
A development that replaces an existing property with a greater number of dwellings
A knock-down rebuild that merely replaces one house with another, or a substantial renovation that does not increase housing supply, may not qualify.
Professional advice should be obtained before signing the contract if the tax treatment is important to your investment decision.
Example: how a carried-forward loss may help later
Assume an investor incurs the following quarantined losses:
Year 1: $12,000 loss
Year 2: $9,000 loss
Year 3: $4,000 loss
The investor has accumulated $25,000 of carried-forward residential property losses.
In Year 4, the investor earns a $10,000 net residential rental profit. Subject to the final rules, $10,000 of the accumulated loss may reduce that rental profit to nil, leaving $15,000 to carry forward.
If the investor later sells an eligible residential property and realises a taxable residential property gain, the remaining loss may potentially reduce that gain.
The loss is therefore deferred—not necessarily wasted.
Property investors will need better tax records
These changes make professional record-keeping more important, not less.
Investors may need to track different categories of losses depending on:
The contract date
Whether the property is established or genuinely new
Whether the property is grandfathered
The ownership structure
Rental income from other properties
The date expenses were incurred
Capital improvements and depreciation
Future residential property sales
Incorrectly treating a quarantined loss as an immediate deduction could result in an amended assessment, interest charges or penalties following an ATO review or tax audit.
Speak with a Sydney accountant before buying
Tax should not be the only reason to buy an investment property. Investors should consider cash flow, interest rates, rental yield, land tax, repairs, vacancy risk and long-term capital growth.
However, understanding whether a property is grandfathered, established or an eligible new build could significantly affect your annual tax position.
EndureGo Tax is a CPA accounting firm assisting individuals, property investors and businesses with:
Rental property tax returns
Tax planning
Capital gains tax calculations
Depreciation and cost-base reviews
ATO correspondence
Tax audit Sydney support
Objections and complex tax matters
If you are looking for a local accountant in Inner West Sydney, an Ashfield accountant, Burwood accountant, Sydney accountant, or an accountant servicingBelrose and the Northern Beaches, contact EndureGo Tax before signing a property contract or lodging your tax return.
We can review your property records, identify legitimate deductions, correctly record carried-forward losses and help you maximise your tax return while remaining compliant with Australian tax law.
Important: This article provides general information based on the announced 2026–27 Federal Budget reforms. Definitions, exemptions and practical reporting requirements should be confirmed against the enacted legislation and current ATO guidance before making an investment or lodging a tax return.
