Negative Gearing Axed? Australia’s Biggest Tax Shock in 100 Years [APS096]

You wake up in the morning, only to find that the loss on your investment property can no longer be claimed as a tax deduction. How would that feel? Just in the past couple of days, the Australian Council of Trade Unions and the Australian Council of Social Service have formally submitted a shocking proposal to the government, either to restrict negative gearing and capital gains tax benefits so they only apply to the first investment property, or to abolish them. This reform would impact more than half of property investors, and at the same time, it would affect almost every tenant in Australia. Many people are already struggling with soaring house prices and skyrocketing rents, but behind the scenes, an invisible force has been quietly reshaping the way wealth is distributed.

For nearly a century, these two tax policies have forced the majority of taxpayers to subsidise property investors. But now, this system—untouched for almost 100 years—is facing unprecedented pressure for reform. If it really becomes law, the fundamental logic behind Australian property investment will be completely changed. From that moment, the real question won’t be what kind of property you should invest in—it will be whether you should even invest in property at all.

Negative gearing means that if you hold an investment property in your personal name and it’s making a loss—whether it’s an actual loss, like when your holding costs are greater than your rental income, or a paper loss, like depreciation—you can deduct that loss from your personal income, which reduces your personal income tax.

For example, say this year you earned $160,000 from your salary, but your property lost $20,000. Instead of paying income tax on $160,000, you pay tax on $160,000 minus $20,000—that’s $140,000.

Why did I say “in your personal name”? Because negative gearing only works if the property is owned by an individual. If it’s under a company, a trust, or a self-managed super fund, you don’t get it.

Now let’s talk about capital gains tax concessions. If you hold an investment property for more than 12 months, and you sell it at a profit, the tax you owe on that profit can be reduced. This applies to properties owned in personal names, trusts, and self-managed super funds—but not for companies.

I put together a comprehensive PDF brochure to summarise the tax benefits of using different entities to buy properties in different states and territories. The downloadable link is in the video description below.

What happens when you combine these two? Normally, if a property is losing money while you own it, you wouldn’t expect to hold onto it for too long—because of the cash flow pressure. But with negative gearing, you don’t have to pay as much personal income tax. That means the loss you bear each year shrinks, and in some cases, you can even turn that loss into a profit on paper. Suddenly, holding the property doesn’t feel so heavy anymore. You can afford to keep it for years, waiting to enjoy its capital growth.

Some people ask, “If you lose money every year while holding it, and only make a gain when you sell—does it really work out in the end?” Well, not always. But when you add the capital gains tax concession into the mix, the situation changes—because now, when you sell, more of that profit stays in your pocket. So you get tax breaks while holding the property, and more tax breaks when you sell. That’s why so many property investors are willing to carry negative cash flow—they know these two tax benefits together make property investment far more attractive.

But now, two major Australian organisations are planning to propose scrapping both of these tax breaks at the Federal Government’s Economic Reform Roundtable later this month.

The Proposal

The proposing organisations include the Australian Council of Trade Unions (ACTU) and the Australian Council of Social Service (ACOSS). Just from their names, you can tell they represent workers and the lower to middle-income groups. Their thinking goes like this: if people can’t find housing, if rents are too high, it must be the fault of property investors.

If you’ve been following our channel, you may remember the point I made in the article by the Daily Mail. It You can go back and watch the latest episode【APS095】for details.

Now, let’s take a look at their specific proposals. ACTU’s proposal is to keep the current negative gearing and capital gains tax concessions unchanged. But five years from now, these two tax benefits would only apply to the first investment property. Their reasoning? Allowing investors to hold multiple properties makes it harder for young people to buy their first home. The proposal by ACOSS is similar. They suggest that the current 50% capital gains tax discount should be gradually reduced to 25% over the next five years—about 5% less each year—and this change would apply not just to investment properties but also to superannuation. As for negative gearing, they want it gone completely within five years. Losses from an investment property could only be offset against income from that property itself—they could no longer be deducted from your personal income.

And again, their reasoning is the same: people can’t afford to buy a home, can’t afford to rent, and life is becoming harder for young Australians.

But… is that the only reason? Not quite. There’s another factor—one they’re not shouting about—and that is the government’s budget shortfall. They need more money to fill the gap.

Who Will Be Affected by the Proposal

In the 2022–23 financial year, there were 1.1 million property investors in Australia using negative gearing, claiming a total of $10.4 billion in tax deductions. What does that mean? It means the government effectively gave up $10.4 billion in tax revenue each year—money that could have been used to build more public housing or improve schools and hospitals.

Among those 1.1 million investors, 300,000 owned two or more investment properties—just 13.5% of all property investors. Yet they claimed $4.8 billion in deductions—nearly half of the total. In other words, the more properties you own, the bigger the tax benefits you get.

Under ACTU’s proposal, 13.5% of property investors would be affected—those with two or more investment properties using negative gearing. ACOSS’s proposal is more drastic—scrapping it entirely, which would hit 49% of all property investors, effectively everyone using negative gearing.

According to the Parliamentary Budget Office, 80% of the capital gains tax discount goes to the top 10% of income earners, and 60% of negative gearing benefits go to the top 20%. This is the classic “Matthew Effect” in economics—where the rich get richer, and the poor get poorer.

So, who ends up paying for this $10.4 billion revenue hole? The answer is simple—every taxpayer in Australia. The wealthy contribute little in tax; the lowest-income groups pay none. So in reality, it’s the middle class carrying the cost of these tax breaks. Lower-income groups, who generally can’t afford property, oppose negative gearing and CGT concessions. The wealthy know how to maximise tax advantages, so they’ll fight to keep them. If you’re middle-class, what do you do? Do you refuse the tax benefits—perhaps for moral reasons—joining protests to abolish them? Or do you exercise your legal rights, reduce your tax bill, and quietly build wealth for your future?

I’ve thought about this before. During the pandemic, some buyers from other countries snapped up all the masks in Australia, shipped them back to their country, and sold them for profit. Local supplies ran out. Others began producing masks here, selling them at high prices to meet surging demand. One factory owner paid off a $5 million home loan in less than a year. Do you blame them, or envy them? Ethics aside, they made money—legally. And with money comes choices—like the freedom to retire early. Isn’t that what most people want?

The same goes for property investment in Australia. We follow the rules. We obey the law. We make money legally. There’s nothing wrong with that. In any competition, there will be winners and losers. Those who can’t afford to buy often blame investors for the housing crisis. But… is that really the full story?

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Will This Tax Reform Make Housing Cheaper?

Many believe abolishing the capital gains tax discount will push house prices down, making homes more affordable. But in reality, the opposite might happen. When investors face a higher capital gains tax, their first instinct is not to sell at a lower price—it’s to hold. Imagine you bought a property for $600,000 and could now sell it for $1 million. With the current 50% CGT discount, you only pay tax on $200,000 of the gain. Without it, you pay tax on $400,000. In that scenario, most rational investors would hold onto the property and wait—perhaps until they have losses elsewhere to offset the gain. That means fewer properties hitting the market.

Now consider this: with an 80% LVR and long-term rental, most properties in Australia’s major cities are already cash-flow negative. If negative gearing is scrapped, properties with poor cash flow and little capital growth—like certain new apartments—become entirely unattractive. No one buys them, prices stall, developers lose incentive, and supply falls.

Some economists estimate that removing negative gearing could lower prices by 1–4% in the short term. But most people can’t buy a home not because prices are 1–4% higher, but because they don’t have the 20% deposit or the borrowing capacity for the other 80%. Instead of worrying about a small price drop, focus on saving that deposit—cut unnecessary spending, skip the protests, start a side hustle, and use your weekends to build skills and perspective.

A 1–4% fall won’t solve affordability. What it will do is cut annual housing construction, reduce listings, and create a supply shortage that drives rents up—until prices rebound again.

There’s another consequence—government revenue. Stamp duty is a major income source for state governments. In Sydney, a $1 million home attracts over $40,000 in stamp duty. If transaction volumes drop sharply, so does stamp duty revenue—forcing governments to find new taxes, which will likely hit ordinary taxpayers.

The Reserve Bank of Australia has warned: while negative gearing has flaws, scrapping it could harm the rental market. If investors exit, rental supply falls, rents rise, and the ones who suffer most are tenants.

Negative gearing was introduced in the 1930s, when Australia faced a housing shortage. The logic was simple—if more people bought investment properties, supply would increase, and more people could rent. To encourage this, the government offered a perk—negative gearing. Ninety years later, the economy and society have changed dramatically, but one truth remains: property investment still plays a role in increasing housing supply, giving more people a place to live.

Other Countries and Negative Gearing

Negative gearing exists in other countries too—Germany, Japan, and Canada all have it. In the US and UK, losses from one investment property can be used to offset gains from another. And then there’s Australia’s neighbour, New Zealand—a real-world case study.

In March 2021, New Zealand’s Labour government launched a five-year plan to abolish negative gearing, aiming to cool the overheated housing market. For new properties, mortgage interest deductions were scrapped immediately; for existing properties, they were reduced from 100% to zero by 2025. But things didn’t go as planned.

By 2023, Labour was out, replaced by the National Party, which quickly overturned the policy. From April 2024, interest deductibility was restored to 80%, and by April this year, it was back to 100%. In just a few years, the policy did a complete 180—a political rollercoaster. But why the reversal?

Labour’s goal was to cool the market. Instead, rents rose faster and higher, making housing even less affordable for tenants. Property prices continued to climb through 2021–22, showing no signs of slowing.

Investors, anticipating the loss of negative gearing, simply raised rents to make tenants cover the lost tax breaks—worsening the very problem it sought to fix. This backfire was one of the main reasons Labour lost the 2023 election.

Policy-making is complex. A seemingly simple tax tweak can set off a chain reaction. Scrapping negative gearing can boost government revenue and, in theory, improve affordability. But will it truly help young people buy homes? I don't think it will.

Australian Government Rules Out The Tax Reform

The turning point came just a week ago. Both the Prime Minister and the Treasurer publicly stated that no new taxes would be considered before the 2028 election. They will focus only on the tax measures promised during the 2025 campaign—two of which matter to us as property investors: First, no changes to negative gearing. Second, an extra 15% tax on the portion of super balances over $3 million, including unrealised capital gains.

Shortly after the PM spoke, the Housing Minister doubled down, thanking ACTU and ACOSS for putting forward proposals to amend negative gearing and the capital gains tax discount ahead of this month’s Economic Reform Roundtable—but making it clear the government would ignore them.

The PM’s stance is simple: scrapping these tax benefits would reduce housing supply and worsen, not solve, the housing crisis.

So when you see some YouTubers claiming “Australia is changing negative gearing and CGT,” remember—by the time those videos went live, the government had already rejected the idea. Not only is that information outdated, it’s inaccurate.

My approach is different—I wait for both the rumour and the official response before presenting it to you. That way, our viewers get the full picture and can make informed decisions without wasting time on speculation.

So if a major property, economic, or housing story breaks and you don’t hear it from me immediately, be patient. In a few days, you’ll get the complete analysis.

Watch the video version of the blog on YouTube.

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