Negative gearing from 2027-28: what the Act actually does

Negative gearing has not been abolished. From the 2027-28 income year, new section 26-155 of the Income Tax Assessment Act 1997 quarantines the excess of your residential-property deductions over your residential-property income: that excess cannot be deducted against salary or other income for the year, but it is not lost — it may be applied against specified residential capital gains, and any remainder carries forward. The measure is enacted (Act No. 49 of 2026, Royal Assent 26 June 2026; Schedule 2 commenced 27 June 2026), but it does not affect the 2025-26 or 2026-27 income years.

Key points:
- This is **enacted law, not a proposal** — the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) received Royal Assent on **26 June 2026** and Schedule 2 commenced on **27 June 2026**. See [enacted vs announced measures](/technical-resources/glossary#enacted-vs-announced).
- **Commencement is not application.** Schedule 2 item 5 applies the amendments *"in relation to the 2027-28 income year and later income years"*. Your **2025-26** and **2026-27** returns are not affected by this measure.
- The rule **quarantines**, it does not abolish. Where your total deductions for using or holding [residential dwellings](/technical-resources/glossary#residential-dwelling) as residential accommodation exceed your total assessable income from doing so, the **excess** is not deductible that year (s 26-155(1)(a)).
- The excess becomes a **[quarantined amount](/technical-resources/glossary#quarantined-amount)**: it may be applied in the section 102-5 net capital gain method statement against **residential** capital gains only, and anything left over **carries forward** to the next income year with no cap and no time limit. **Deductions are deferred, not lost** — the sole permanent forfeiture is on bankruptcy or an equivalent release from debt (s 26-155(8)–(9)).
- The test is **portfolio-wide, not property-by-property**: s 26-155(1) compares your total residential-dwelling deductions against your total residential-dwelling income for the year.
- Grandfathering is precise: amounts are disregarded to the extent they relate to an ownership interest in a residential dwelling you **last acquired before 7.30 pm, by legal time in the Australian Capital Territory, on 12 May 2026** (s 26-155(2)(a)) — and for a dwelling acquired under a contract, s 26-155(3) says you hold that interest **from the contract date**, not settlement.
- **Complying superannuation entities** and **widely held unit trusts** are carved out of the rule entirely (s 26-155(4)). Ordinary discretionary and family trusts are not.
- The Act contains a **"new residential dwelling"** exception (s 26-155(2)(b)) — but its defining legislative instrument under **s 26-160(4) had not been made** as at 13 July 2026. The exception therefore **cannot presently operate**, and nobody can yet say what will qualify.