Negative gearing is changing in 2026: what’s the positive-cashflow alternative?

Answering: Negative gearing is changing in 2026, so what is the positive-cashflow alternative for investors?

Estimated reading time: 8 min read

It is an unsettling feeling to realise the plan you built your future on is being rewritten underneath you. If you bought established property to negatively gear it, that is exactly what the 2026 reforms can feel like. So here is the direct answer: yes, negative gearing is set to change. Under the 2026-27 Federal Budget announced on 12 May 2026, negative gearing on established residential property bought after 7:30pm AEST that night is set to be removed from 1 July 2027, with rental losses quarantined to property income rather than offset against your wages. New builds stay exempt. These are announced measures and remain subject to the passage of legislation. The positive-cashflow alternative most affected investors are now examining is purpose-built co-living. Based on The Harmony Group’s team experience across 200-plus delivered projects and a historical average gross yield of 10.8 per cent the team reports, purpose-built co-living is designed to produce positive cashflow from settlement rather than an annual paper loss.

You bought into a system where a yearly loss reduced your salary tax and was meant to be rewarded later by capital growth. That logic is being rewritten for established property, and it is reasonable to ask what still works.

The reality is that negative gearing only ever made sense while two things held at once: the tax rules stayed put and capital growth kept arriving. The reform removes the first pillar for established property. Success now depends on owning assets that pay their own way, and on understanding which properties remain exempt from the changes.

This guide explains what is actually changing, why positive cashflow matters more in this environment, where purpose-built co-living fits, and the first step to take. The Harmony Group helps investors structure for income from settlement rather than relying on negative gearing and hoped-for growth.

Key Insights

• Under the announced 2026-27 Budget measures, negative gearing on established residential property is set to end from 1 July 2027 for purchases made after 7:30pm on 12 May 2026, with losses quarantined to property income and carried forward, not deducted against wages.
• New builds remain exempt, keeping negative gearing plus a choice between the 50 per cent capital gains tax discount and the new indexation and minimum 30 per cent tax arrangement.
• Purpose-built, 1B-certified co-living is a new-build asset class designed for positive cashflow, with a historical average yield of 10.8 per cent across the team’s projects.

Keep reading for full details below.

Table of Contents

• What the 2026 Negative Gearing Reform Actually Changes
• Why Positive Cashflow Matters More Than a Paper Loss
• Where Purpose-Built Co-Living Fits, and Why New-Build Status Matters

What the 2026 Negative Gearing Reform Actually Changes

The 2026-27 Federal Budget, announced on 12 May 2026, draws a clear line between established property and new builds. The measures are announced policy and still subject to the passage of legislation, so confirm the current status before acting. For established residential property purchased after 7:30pm AEST that night, rental losses are set to be offset only against income from residential property from 1 July 2027. Any excess is quarantined and carried forward to future years, so it no longer reduces your salary or wage income.

There is a short transitional window. An established property bought after the announcement may still be negatively geared until 30 June 2027, after which those deductions against other income may be denied. Properties already owned at the announcement, including those under contract, are grandfathered and remain eligible for negative gearing until they are sold.

New builds are treated differently. Investors who buy a new build can still deduct rental losses against other income, and they can choose between the existing 50 per cent capital gains tax discount or the newly announced indexation method with a minimum 30 per cent tax on sale. This new-build distinction is the detail that matters most for anyone weighing what to do next, and it is the question your accountant or financial planner will be working through after the changes.

Before you act on any of this, confirm your position with a licensed adviser. The rules are nuanced, and individual circumstances change the answer.

• Check the purchase date of each property against the 7:30pm, 12 May 2026 cut-off.
• Ask your accountant how quarantined losses affect your cashflow from 1 July 2027.
• Separate your established holdings from any new-build options when you plan.

	Established residential property	New build (incl. purpose-built co-living)
Negative gearing against wages	Removed for purchases after 7:30pm AEST, 12 May 2026. Rental losses are quarantined to property income and carried forward, not deducted against your salary.	Retained. Rental losses can still be deducted against other income.
Capital gains tax treatment	No CGT choice flagged for established property under the announced measures.	Choice between the existing 50 per cent CGT discount or the newly announced indexation method with a minimum 30 per cent tax on sale.
What changes, and when	Loss of negative gearing applies from 1 July 2027. A property bought after the announcement may still be negatively geared until 30 June 2027. Properties owned at the announcement, including those under contract, are grandfathered and keep negative gearing until sold.	No change to negative gearing access. New builds stay exempt from the established-property restrictions.
Who it suits	Investors already grandfathered, or those whose strategy does not rely on offsetting a yearly loss against wages.	Investors wanting to keep negative gearing access and the CGT choice while structuring for positive cashflow.

Why Positive Cashflow Matters More Than a Paper Loss

When losses are quarantined, a strategy built on an annual deduction against your wages loses much of its point. You are left holding an asset that costs you money each year while you wait for capital growth that may or may not arrive on your timeline. Positive cashflow flips that equation: the property pays you while you hold it, rather than the other way around.

Demand is part of why this is achievable. SQM Research recorded a national rental vacancy rate of 1.2 per cent in April 2026, roughly half the lower bound of the historical balanced range of 2.5 to 3.5 per cent, with Adelaide at 0.7 per cent and Perth at 0.6 per cent. In an acute shortage, well-located, affordable rooms let on a per-room basis can generate materially more income than a single whole-house tenancy.

This is where co-living’s numbers come from. Across The Harmony Group team’s delivered projects, the historical average gross yield has been 10.8 per cent, with occupancy held above 98 per cent through specialist management. These are historical results and past performance is not a guide to future returns, but they show what a cashflow-first model can look like rather than a tax-loss one. You can read more on whether co-living is a tax strategy or a cashflow-first model.

• Model the holding cost of each property without the wage deduction.
• Compare whole-house rent against compliant per-room income in your area.
• Treat any yield figure as historical and potential, never guaranteed.

Where Purpose-Built Co-Living Fits, and Why New-Build Status Matters

Purpose-built co-living is, by definition, a new build. It is designed and constructed for shared living from the ground up and certified to Class 1B, rather than adapted from an existing house. That new-build status is exactly what keeps it on the favourable side of the reform, retaining negative gearing access and the capital gains tax choice that established property loses.

Building for the use from the outset, rather than adapting a property into it, also matters for compliance, valuation and finance. A purpose-built, 1B-certified property is assessed against the standards that lenders and insurers expect, which is part of why the model holds up. You can see the detail in the complete guide to 1B certification for co-living investors.

Not every site or situation suits this approach. The Harmony Group applies a 118-point analysis framework to each opportunity and declines roughly 85 per cent of the sites it assesses, which is the opposite of a volume play. If co-living is not right for your circumstances, an honest assessment will tell you why. Many investors weighing the reform are also asking whether to sell a negatively geared property and move into co-living instead.

• Confirm any co-living property is purpose-built and Class 1B certified.
• Ask how a site was assessed before it was recommended.
• Get advice on how new-build status interacts with your tax position.

The negative gearing reform draws a clear line between established property and new builds, and purpose-built co-living sits on the new-build side. With a historical average yield of 10.8 per cent the team reports across its 200-plus projects and a 118-point assessment that declines roughly 85 per cent of sites considered, the focus is on assets designed to pay their own way. Because the final detail is still being settled in legislation, it is worth speaking to the team for the current picture before you plan around it.

For a deeper look, visit The Harmony Group to explore how we approach positive-cashflow property structuring.

Frequently Asked Questions

Q: Is negative gearing being abolished in Australia in 2026?

A: Not entirely, and not yet. Under the 2026-27 Federal Budget announced on 12 May 2026, negative gearing on established residential property is set to be removed from 1 July 2027 for properties bought after 7:30pm that night, with losses quarantined to property income rather than wages. New builds remain exempt, and properties owned before the announcement are grandfathered. These are announced measures still subject to legislation, so confirm the current position with the ATO or a licensed adviser.

Q: Should I get advice before changing my property strategy after the reform?

A: Yes. The Harmony Group provides general information about co-living, not personal financial or tax advice, so the right first step is a conversation with your accountant or a licensed adviser about your own position. Harmony works alongside those advisers rather than replacing them.

Q: When do the negative gearing changes take effect?

A: The changes start on 1 July 2027. An established property bought after the 12 May 2026 announcement can be negatively geared until 30 June 2027, after which deductions against other income may be denied. New builds are unaffected and keep negative gearing access.

Q: How do I find out if co-living suits my situation?

A: Book a free, no-obligation strategy session. The session is an honest assessment of whether purpose-built co-living fits your goals, and if it is not suitable, you will be told why rather than sold a property.

Want to Learn More?

The Harmony Group’s team brings 15 years of specialist experience and a track record across more than 200 delivered co-living projects. The approach is educators-first: clear information, honest assessments, and a focus on assets that are built to pay their way.

Citations

• “Tax reform, Budget 2026-27”:The Australian Government’s budget paper confirms negative gearing on established property is limited from 1 July 2027, that losses are quarantined to property income, and that new builds keep negative gearing and a CGT choice. https://budget.gov.au/content/04-tax-reform.htm
• “Federal Budget 2026-27: Negative Gearing”:Pitcher Partners confirms the 7:30pm, 12 May 2026 cut-off, the 1 July 2027 start, the transitional window to 30 June 2027, and grandfathering of existing owners. https://www.pitcher.com.au/insights/federal-budget-2026-27-negative-gearing/
• “SQM Research National Vacancy Rates, April 2026”:Analysis of SQM Research’s 12 May 2026 bulletin records a national rental vacancy rate of 1.2 per cent, with Adelaide at 0.7 per cent and Perth at 0.6 per cent, well below the balanced range of 2.5 to 3.5 per cent. propertyinvestmentprofessionals.com.au

General information only. The Harmony Group provides general information about property and co-living investment, not personal financial, tax or legal advice, and does not hold an Australian Financial Services Licence (AFSL). It does not account for your objectives, financial situation or needs, so consider its appropriateness and seek advice from a licensed financial adviser, accountant or the ATO before acting. Past performance is not a guide to future results and historical figures may not be repeated. Any tax or regulatory measures described may be announced rather than enacted and are subject to change.