Australia property tax reforms to impact negative gearing and rents

New Australian tax laws regarding negative gearing are set to change the residential property landscape. From July 1, 2027, the ability to deduct rental losses against other income, such as salary or wages, will be restricted for established residential properties. These losses will instead be quarantined to the residential property investment system, meaning they can only be used against income from residential property or carried forward to future years.

To comply with grandfathering provisions, investors who exchanged contracts before the May budget will maintain existing benefits. However, for those subject to the new rules, experts suggest rental yields may need to rise significantly to compensate for the loss of tax benefits. National Australia Bank and Ray White have modeled potential rent increases of up to 30 per cent to offset these changes.

Data from Cotality indicates that rental markets are already under pressure. In some capital cities, rents have surged by as much as 80 per cent since the end of COVID-era rental freezes. High demand in areas populated by international students in Sydney and Melbourne, alongside significant spikes in suburbs like Balga in Perth, has contributed to a highly competitive rental environment.