A bold move is being considered by the government, one that could shake up the property investment landscape. The Treasury is modeling new limits on negative gearing, a practice that has long been a bone of contention.
As of February 27, 2026, the Albanese government is exploring ways to cap negative gearing to just two rental properties per investor. This proposed change has sparked a heated debate, with both supporters and critics weighing in on its potential impact.
Government sources have confirmed that the Treasury has been tasked with modeling these changes amidst growing pressure to find budget savings and increase revenue ahead of the federal budget in May. Health Minister Mark Butler, while not revealing the extent to which this reform is being considered, emphasized the government's commitment to creating a level playing field for younger Australians.
But here's where it gets controversial... Negative gearing allows investors to deduct losses from running a property, such as interest, rates, and maintenance, from their annual income, thereby reducing their tax liability. This practice has been a subject of debate for years, with some arguing that it incentivizes investment in housing, leading to increased supply and potentially lowering rents and house prices. However, others contend that the benefits disproportionately favor wealthier individuals, pushing property prices even higher.
The government is also considering changes to the capital gains tax discount, which currently allows investors to sell a property and pay tax on only 50% of the profit if they've owned it for at least a year. The family home is currently exempt from this tax.
Labor has previously attempted to reform these deductions but faced defeats in the 2016 and 2019 elections. However, with housing affordability worsening, the government is under renewed pressure to improve the budget and boost productivity. Treasurer Jim Chalmers has made it clear that he is open to reconsidering policies like winding back capital gains tax discounts and negative gearing.
And this is the part most people miss... The government's preferred change is to the capital gains tax discount, but they are also open to restrictions on negative gearing after receiving advice from the Treasury on the probable impacts of these policies.
Opposition Leader Angus Taylor has voiced his opposition, stating that it is "highly unlikely" that the Coalition will support changes to negative gearing. He accused Labor of targeting working Australians' hard-earned money.
Jane Hume, the Opposition Deputy Leader, argued that increasing taxes on landlords would lead to higher rents. She believes that the key to improving housing affordability is increasing supply by building more homes, not by limiting tax incentives.
Australian Tax Office figures for the 2021-22 period show that 1.3 million people were positively or neutrally geared, while 950,000 were negatively geared. Costings requested by the Greens from the Parliamentary Budget Office in 2024 estimated that the revenue foregone from negative gearing during the 2024-25 period was approximately $6.9 billion, while capital gains discounts on residential properties cost $5.4 billion.
So, what do you think? Is limiting negative gearing a step towards improving housing affordability for first-time buyers, or will it simply push rents and property prices even higher? Join the discussion and share your thoughts in the comments below!
