Negative Gearing for Aussie Expats: What’s Changed, What’s Grandfathered, and What to Do Before 1 July 2027

For thirty years, negative gearing was the closest thing Australia had to a national sport that didn’t involve a ball. Borrow to buy a rental, run it at a loss, claim that loss against your salary, and bank on the property’s growth to make it all worthwhile. Politicians fought elections over it. Your uncle wouldn’t shut up about it at Christmas.

Then came the 2026-27 Federal Budget, handed down on 12 May 2026, and the game changed. Not abolished, not overnight, but restricted in a way that genuinely matters, especially if you’re an Aussie expat with a rental property back home. So let’s walk through what negative gearing is, what just changed, and the one date you need tattooed on your brain: 1 July 2027.

Negative gearing in one minute

Gearing just means borrowing to invest. You’re “negatively geared” when the costs of owning an income-producing investment (the loan interest, the property management fees, council rates, insurance, repairs, and the non-cash deduction of depreciation) add up to more than the income it produces. You’re running the investment at a loss on paper.

Why would anyone want a loss? Because of two things working together: that loss could be used to reduce the tax on your other income, and you were betting the property’s capital growth would more than cover the cash you were bleeding each year. It was leverage, plus a tax break, plus a punt on growth. For decades it worked a treat.

Note the past tense. Here’s why.

What the 2026-27 Budget actually changed

From 1 July 2027, negative gearing on residential property is restricted to new builds only. If your investment property isn’t a brand new dwelling that adds to housing supply, you can no longer use its rental losses to reduce your other income. Instead, those losses get quarantined (more on that below).

The logic is the government wanting more houses built, so the tax carrot now only dangles in front of investments that create new dwellings: a new apartment off the plan, a knock-down-rebuild that turns one house into a duplex, construction on vacant land. An established house, a granny flat, or a renovation doesn’t qualify.

This sits alongside an even bigger change in the same Budget: the 50% capital gains tax discount is being scrapped from 1 July 2027 and replaced with cost base indexation plus a 30% minimum tax on gains. The two changes are joined at the hip, and we’ve written a full breakdown of both in our Australian Expat Tax Changes – 2026 Budget Guide for Expats. This article focuses on the gearing side; that guide is your deep dive on the lot.

The magic word: grandfathering

Now breathe out, because here’s the part that saves a lot of expats from a heart attack.

If you already owned your investment property at 7:30pm AEST on 12 May 2026 (or had signed a contract that hadn’t yet settled at that moment), you’re grandfathered. Indefinitely. You can keep negatively gearing that specific property, the old-fashioned way, against all your income, until the day you sell it.

Read that again, because it’s worth real money. If you’re holding a negatively geared Australian property right now, the Budget handed you a permanent tax shield on it. The corollary, which I’ll say plainly because someone needs to: don’t sell a grandfathered property for trivial reasons, because you can never get that treatment back on a replacement (unless the replacement is a new build).

Bought (or buying) a property between 13 May 2026 and 30 June 2027? You get a short transitional run: you can negatively gear it for the 2026-27 year, but from 1 July 2027 it falls under the new rules unless it’s a new build. And anything bought from 1 July 2027 onwards gets no negative gearing at all, unless, you guessed it, it’s a new build.

Can expats still negatively gear? Yes, with the same rules as everyone

Here’s something that surprises people: your residency doesn’t lock you out of negative gearing. As a non-resident, your Australian rental property still generates deductible losses, and under the old rules (and for grandfathered properties, the ongoing rules) those losses reduce your Australian-sourced taxable income, with any excess carried forward to future years.

The grandfathering applies to you exactly as it does to residents. Owned your Australian rental at 7:30pm on 12 May 2026? You keep negatively gearing it against your Australian income until you sell, non-resident or not. The Budget didn’t carve expats out of the good bit, which is a pleasant change from the direction of travel over the past decade.

The trapped losses trap (pay attention, single-property owners)

This is the bit that bites expats specifically, and it’s buried where most people won’t look.

If your property is caught by the new rules (bought after the May 2026 cut-off and not a new build), your rental losses don’t vanish, but they get quarantined into a carry-forward pool. That pool can only be used against your future residential rental income, or against capital gains when you sell residential property. It cannot touch your salary, your business income, your dividends, your share or crypto gains, commercial property, or any foreign income.

Now picture the typical expat: one Australian residential property, no other Australian assets, no plan to buy more. You rent it out at a loss for years, building up a tidy pool of quarantined losses. Then you sell. The losses offset that property’s capital gain, fine. But if the gain doesn’t soak them all up, and you’ve got no other Australian residential property to apply them against, those leftover losses just sit there. Stranded. Unusable. Effectively lost.

For a single-property non-resident, that’s a real risk, and it changes the maths on whether a brand new (non-grandfathered, non-new-build) negatively geared property even makes sense. The planning response is about timing: absorbing losses while rental income is flowing, rather than carrying them to a sale year where they might die unused. This is genuinely fiddly, and exactly the sort of thing worth modelling before you buy, not after.

What about negatively gearing shares?

Worth clearing up a long-standing point, because a lot of Australian expats opinions on this point are more than slightly muddled. As a non-resident, the interest and costs on money borrowed to buy Australian shares are generally not deductible against your other income, because the dividends and capital gains are not considered to be assessable income in the hands of a non-resident. Interest and dividends themselves are dealt with through the withholding tax system and sit outside your assessable income. What you can do is include those costs in the cost base of the shares, which reduces the capital gain down the track. But given that those gains are usually tax-free for a non-resident, those costs provide no additional benefit at all. So “negatively gearing shares” as a non-resident doesn’t really work the way property does, and it never has.

So what should expats do before 1 July 2027?

A few honest pointers, none of which are one-size-fits-all.

If you hold a grandfathered property, the headline is simple: that grandfathering is valuable, so think very hard before doing anything that ends it. If you’re planning future leveraged property investment and want to keep the negative gearing benefit, new builds are now the only door. And because the CGT discount is vanishing at the same moment, anyone with substantial Australian assets should be thinking about valuations as at 1 July 2027 and the timing of any sale or any return to Australia, all of which we cover in the budget guide linked above.

The one thing I’d steer you away from is panic-selling. The grandfathering and the transitional rules are deliberately generous to existing owners, so for most people the right move is careful planning, not a fire sale. But “careful planning” means running your actual numbers, not following a rule of thumb from a bloke at a barbecue who heard negative gearing was “gone”.

The bottom line

Negative gearing isn’t dead, but from 1 July 2027 it’s reserved for new builds, and existing arrangements are grandfathered if you held the property before 7:30pm on 12 May 2026. For expats, the sting is the loss quarantining, which can strand losses for single-property owners, layered on top of the simultaneous loss of the 50% CGT discount. The rules are knowable, the grandfathering is generous, and the next 14 months are for planning, not panicking.

Tread your own path. Just check which side of 1 July 2027 each of your decisions lands on.

These changes are big. Generic advice won’t cut it.

The difference between the right move and the wrong one here runs into tens of thousands of dollars, and it depends entirely on your residency, your assets, and your plans. Should you hold that grandfathered property? Does a new build stack up? When should you return home, and what should you do with your assets before you do? These aren’t questions for a rule of thumb.

Our specialist expatriate tax team has spent over 20 years on exactly this, and we’re already modelling the 2026-27 changes against clients’ real situations every week.

Book an appointment with our expat tax specialists today and get a strategy mapped out while there’s still time to act before 1 July 2027. Your future self (and your hip pocket) will thank you.

General information only. This article doesn’t consider your personal circumstances and isn’t tax or financial advice. The legislation for these Budget measures had not been enacted at the time of writing and the detail may change. Book an appointment with our specialist expatriate tax team today, or speak with another registered tax agent, before acting.

References

1. Australian Government, Budget 2026-27, “Negative Gearing and Capital Gains Tax Reform” fact sheet (negative gearing restricted to new builds from 1 July 2027, the 7:30pm AEST 12 May 2026 grandfathering cut-off, loss quarantining and new build definitions): budget.gov.au
2. Australian Taxation Office, “Rental property expenses” (deductible holding costs and depreciation for rental properties): ato.gov.au
3. Australian Taxation Office, “Foreign residents and capital gains tax” (how non-residents are taxed on Australian assets): ato.gov.au