TL;DR
- Negative gearing for established residential properties purchased after 7:30pm AEST on 12 May 2026 will be abolished from 1 July 2027 [2] [3], meaning the offset strategy many non-residents rely on has a hard end date.
- When a property turns cash-flow positive, non-residents pay tax on net rental income at non-resident marginal rates, with no tax-free threshold.
- The 50% capital gains tax (CGT) discount available to residents does not apply to non-residents; foreign resident CGT withholding also applies at the point of sale.
- Deduction timing, loan restructuring, and depreciation schedules are legitimate tools to manage the transition, but they require planning before the flip occurs, not after.
- The 2026 Budget reforms make it especially urgent for non-residents who own or are considering purchasing established properties to reassess their long-term tax position now.
What Does “Negative Gearing Running Out” Actually Mean?
Negative gearing describes the situation where the costs of holding an investment property, including loan interest, depreciation, and other deductible expenses, exceed the rental income it generates [1]. For Australian non-residents, those losses can be offset against other Australian-sourced income, reducing total taxable Australian income. When the property eventually earns more than it costs to hold, that offset disappears, and you are left with a net rental profit that is fully taxable.
Most investors understand the concept in theory. Few model when the flip will actually happen, or what their effective tax bill will look like when it does. For non-residents, the stakes are higher because there is no tax-free threshold on Australian income. Every dollar of net rental income is taxable from the first dollar.
How Do the 2026 Negative Gearing Reforms Change the Equation?
Building on the urgency of the cash-flow flip, there is now a structural policy change that compresses the planning timeline significantly. Following the 2026 Federal Budget, negative gearing for established residential properties purchased after 7:30pm AEST on 12 May 2026 will be abolished from 1 July 2027 [2] [4]. New builds remain eligible [3] [5].
What this means in practice:
- Properties purchased before Budget night (12 May 2026) retain negative gearing under grandfathering provisions [4].
- Established properties acquired from Budget night onward will lose the ability to offset rental losses against other income from 1 July 2027 [2] [3].
- New builds remain fully eligible for negative gearing under the reformed rules [5].
- Additionally, the 50% CGT discount will be replaced with an inflation-based indexation method for all CGT assets from 1 July 2027 [5], which affects long-term after-tax returns at the point of sale.
| Property Type and Acquisition Timing | Negative Gearing from 1 July 2027 | CGT Discount Treatment |
|---|---|---|
| Established property purchased before 12 May 2026 | Retained (grandfathered) [4] | Existing rules apply (non-residents still ineligible for 50% discount) |
| Established property purchased from 12 May 2026 | Abolished from 1 July 2027 [2] [3] | 50% discount replaced with indexation from 1 July 2027 [5] |
| New build (any acquisition date) | Retained [3] [5] | As per applicable rules at time of sale |
What Tax Does a Non-Resident Pay Once the Property Turns Profitable?
The cash-flow flip is not just an accounting change. It determines your taxable Australian income for the year, and non-residents are taxed differently from Australian residents in ways that significantly affect the outcome.
Key non-resident tax rules on rental income:
- No tax-free threshold applies. Taxable Australian income is assessed at non-resident marginal rates from the first dollar.
- Non-resident marginal rates for the 2025-26 financial year start at 30% on income up to $135,000, then step up through 37% and 45% for higher income bands.
- Net rental income stacks on top of any other Australian-sourced income, including salary from Australian employers or other property income.
Deductions that remain available to non-residents and can reduce net rental income include:
- Loan interest on the investment property
- Depreciation on the building and plant and equipment (subject to property acquisition date and depreciation schedule)
- Property management fees, council rates, insurance, and maintenance
- Accountancy fees related to the investment property
What Role Does Foreign Resident CGT Withholding Play When You Eventually Sell?
Stepping back from the annual income question, the longer-term exposure for non-resident landlords is at the point of sale. Foreign resident CGT withholding (FRCGW) is a mechanism where the buyer withholds a percentage of the property’s sale price and remits it directly to the ATO as a prepayment against the non-resident vendor’s CGT liability.
Key facts about foreign resident CGT withholding:
- FRCGW applies to Australian real property sold by foreign residents above the relevant threshold set by the ATO for the applicable financial year.
- The withholding rate set by the ATO applies to the gross sale price, not the capital gain, which means it can significantly exceed the actual CGT liability in some scenarios.
- Non-residents do not receive the 50% CGT discount that Australian residents can access on assets held for more than 12 months. This distinction is one of the most consequential non-resident tax rules and one of the most frequently misunderstood by investors who were residents when they purchased the property but have since moved overseas.
- Vendors can apply to the ATO for a variation to the withholding rate if the default rate exceeds the expected tax liability.
Planning around foreign resident CGT withholding requires working backward from an expected sale scenario, modelling the actual CGT liability, and lodging the correct variation or clearance certificate before settlement.
Frequently Asked Questions
Does the negative gearing reform affect properties I already own?
Properties purchased before 7:30pm AEST on 12 May 2026 are grandfathered and retain negative gearing treatment under existing rules [4]. The abolition applies to established residential properties acquired from that date onward [2] [3].
Can I still claim depreciation once the property becomes cash-flow positive?
Yes. Depreciation on qualifying assets remains a legitimate deduction regardless of whether the property is positively or negatively geared. However, depreciation claimed during ownership will reduce the cost base of the property, which increases the capital gain on eventual sale.
What happens if I become an Australian tax resident again before I sell?
Residency status at the time of sale determines which CGT rules apply. If you are an Australian resident at the date of sale, you may be eligible for the 50% CGT discount on the gain accrued during periods of residence. The calculation is complex and depends on the timing of your residency changes. This is an area where specialist advice is important.
Do new builds avoid both the negative gearing abolition and the CGT discount change?
New builds retain negative gearing eligibility under the reformed rules [3] [5]. However, non-residents remain ineligible for the 50% CGT discount regardless of property type. Under the reformed CGT rules, investors in new builds can choose between the 50% CGT discount or the new indexation method at the time of sale, and the rules should be reviewed against the final legislation as it is enacted.
Can losses from a negatively geared property be carried forward if I cannot use them in a given year?
Under Australian tax law, non-residents can generally carry forward rental losses to offset against future Australian income, including future rental income once the property becomes profitable. Tracking and correctly reporting these carried-forward losses requires accurate records and correctly lodged returns in every intervening year.
Is FRCGW a final tax or can I get some of it back?
Foreign resident CGT withholding is a prepayment, not a final liability. Once you lodge your Australian tax return for the year of sale and calculate your actual CGT, any withholding in excess of your liability is refunded by the ATO. Conversely, if the withholding is less than the actual CGT, additional tax is payable.
Should I consider selling before the property turns cash-flow positive to avoid the tax impact?
Timing a sale is a personal financial decision that depends on market conditions, your overall return, and your individual tax position. There is no universal answer. What matters is that the decision is modelled correctly, including the CGT liability net of foreign resident CGT withholding, before you commit to a course of action.
About ODIN Tax
ODIN Tax is Australia’s specialist tax agent practice for Australian expats and non-residents, serving over 10,000 clients across 40+ countries as a Registered Australian Tax Agent. Part of the ODIN Group alongside Odin Mortgage, ODIN Tax prepares Australian tax returns, manages overdue lodgments, and provides CGT and tax residency advice for Australians living overseas. Led by Tax Director Pau Lam, who brings more than 10 years of specialist expat tax experience, ODIN Tax is headquartered in Hong Kong, precisely where many of its clients live and work. For non-resident landlords navigating rental income tax, negative gearing reform, and foreign resident CGT withholding, ODIN Tax provides the integrated expertise that generalist accountants consistently miss.
Is your investment property approaching the cash-flow positive threshold?
The time to model your tax position is before the flip happens, not after. ODIN Tax works with non-resident landlords across 40+ countries to map out exactly what the transition means for their Australian tax obligations, including rental income tax, depreciation strategy, and foreign resident CGT withholding planning.
References
- Negative gearing | Treasury.gov.au (treasury.gov.au)
- Federal Budget Analysis 2026 | Negative gearing – William Buck Australia (williambuck.com)
- Negative gearing abolished for all but new builds (www.hayesknight.com.au)
- Negative Gearing Limited To New Builds From 1 July 2027 (www.goodwinchivas.com.au)
- Negative Gearing Changes 2026: Investor Guide (www.propti.com.au)
