Under the current law, interest and holding costs relating to an income‑producing property are deductible under section 8‑1 of the Income Tax Assessment Act 1997 (ITAA 1997), to the extent they are incurred in gaining or producing assessable income, allowing taxpayers to offset net rental losses against other assessable income such as salary and wages. In practice, this has enabled “negative gearing,” where excess deductions (including interest under s8‑1 and capital works deductions under Division 43 ITAA 1997) reduce taxable income in the current year. However, the 2026–27 Federal Budget proposes to modify this treatment for residential investment properties acquired after 7:30pm AEST on 12 May 2026, such that from 1 July 2027 deductions attributable to losses from established residential properties will no longer be available to offset non-property income, but instead will be quarantined and carried forward to be applied only against future rental income or capital gains. This represents a structural shift away from the current application of s8‑1 in this context, effectively introducing a ring‑fencing regime. Importantly, the measure preserves full deductibility for investments in newly constructed residential properties, maintaining access to immediate offset against other assessable income, and includes grandfathering provisions for properties held prior to the announcement, ensuring continuity of existing tax treatment for those assets. Accordingly, while the legal framework of deductibility under ITAA 1997 remains intact, the proposed reforms operate as a targeted limitation on the application of those deductions, with significant implications for cashflow, tax planning and investment structuring. [austax.tools], [ismartfinance.com.au]

Northcity

Accountants & Tax Agents

Payment Methods

Direct Deposit

Name: Northcity Accountants
Bank Name: Westpac Banking Corporation
BSB: 033 073
Acc No: 461482

Post a cheque

P O Box 1030, Epping,
VIC 3076 Australia

Paypal

Tax preparation Fee
Bas preparation Fee
Company Registration Fees
Other Fees

Credit cards

Master card
Visa
EFTPOS
Amex
Diners Cards
JCB cards

Reviews

Accountants & Tax Agents Pty Ltd & Accountants & Tax Agents (SM) Pty Ltd, Accountants & Tax Agents (Hub Tax) Pty Ltd liability limited by a scheme approved under Professional Standards Legislation