Is property investment worth it without negative gearing?
There is an awkward question buried in the reaction to the Budget: self-managed super funds and family trusts have operated without negative gearing for decades, and investors queued up to use them anyway.
For a lot of investors, yes — but for different reasons than before. The strongest evidence is that SMSFs and discretionary trusts have never been able to offset property losses against personal salary, and money flowed into property through both structures regardless. More tellingly, much of that money came from ordinary investors who had run out of personal borrowing capacity and used those structures because they are assessed differently — people who gave up negative gearing entirely in order to keep buying. What genuinely changes for individual investors is not the investment case but the cash flow: forecasters put the immediate effect at the equivalent of a 90 to 155 basis point rise in the mortgage rate. That is a serviceability problem, not a fundamentals problem, and the two need to be told apart.
The question nobody wants to ask out loud
Since 12 May, the commentary has been close to unanimous: negative gearing is being restricted, therefore property investment is finished. Westpac has forecast a 34% fall in new investor activity. Morgan Stanley has flagged a possible 5% to 10% national price fall.
Worth being precise about one thing before going further: those are forecasts, not measured outcomes. They are informed forecasts from serious institutions, and they may well prove right. But at the time of writing they describe what economists expect, not what has been counted.
And running underneath the whole discussion is an observation that deserves more attention than it has received.
SMSFs and trusts have never had negative gearing
This is the part that gets lost. A self-managed super fund is a separate entity, and its losses are quarantined inside it. If your fund owns a property that runs at a loss, that loss cannot reduce the tax on your salary. It sits in the fund and waits.
A discretionary trust works the same way for this purpose. A trust cannot distribute a loss to its beneficiaries — the loss is trapped in the trust and carried forward until there is income to absorb it. Buy a negatively geared property in a family trust, and your personal tax bill does not move.
In other words, both structures have operated for decades under essentially the arrangement now being applied to individuals buying established homes: losses quarantined against property income, carried forward, no offset against wages.
And people invested through them anyway. Enthusiastically, and in volume.
So why did those investors proceed?
Because they were buying the asset rather than the refund. Specifically:
- Rental yield — income that arrives whether or not the tax office contributes.
- Capital growth over a long holding period, which is where the return in Australian residential property has overwhelmingly come from.
- Asset protection — particularly for business owners and professionals with liability exposure.
- Leverage — the ability to control an appreciating asset with borrowed money, which is the actual engine of property returns.
- Estate and succession planning — holding an asset in a structure that survives the individual.
None of those five things changed on Budget night. Not one. If they were sufficient reason to buy property inside a trust in 2019, it is worth asking honestly why they stop being sufficient reason to buy property personally in 2027.
And many of them were ordinary investors, not wealthy ones
There is a second part to this that is easy to miss, and it matters because it removes the obvious objection.
The usual response to the argument above is that SMSF and trust investors are simply a wealthier group with longer horizons, so they never needed the refund. For the past several years, that has been increasingly untrue.
As personal borrowing capacity tightened — the APRA serviceability buffer, debt-to-income limits, and tougher expense benchmarking after the Banking Royal Commission — a great many perfectly ordinary investors found they simply could not borrow any more in their own name. A significant number responded by buying through a self-managed fund or a trust instead, because those are assessed under a different framework.
Most SMSF lenders assess serviceability on the fund’s income — rental income shaded to around 80%, plus employer contributions. The member’s personal salary does not enter the calculation at all. Borrowing through a company or trust for investment purposes sits outside the consumer credit framework that governs individual lending, and is assessed on its own terms.
So a large share of recent SMSF and trust property buyers were not a different species of investor. They were the same people, blocked from borrowing personally, taking the route that remained open — and accepting no negative gearing as part of the deal, without apparent hesitation.
That is the strongest version of the argument. These were not investors who could take or leave the refund because they were rich. They were investors who wanted property enough to give up the refund entirely in order to get it.
One route that is about to close
Worth knowing if this is your plan: it is being shut for residential property.
From 10 August 2026, a self-managed fund can no longer enter a new borrowing arrangement to buy residential property. Any new limited recourse borrowing arrangement over real property must be for business real property. Existing arrangements are grandfathered and refinancing remains available, and a fund can still buy residential property outright with no borrowing — but the geared route is closing.
The timing is worth noticing. The restriction on negative gearing and the closure of SMSF residential borrowing arrive within about a year of each other, which removes both the tax benefit for new established purchases and one of the main workarounds for constrained personal borrowing capacity.
Now the honest counterweight
It would be easy to stop there, and it would be a misleading place to stop. There are three real differences, and anyone selling you the argument above without them is selling something.
SMSFs got a very large consolation prize. A fund pays 15% on income in accumulation phase and nothing at all in pension phase, and it keeps the one-third CGT discount that individuals are losing. So the SMSF bargain was never simply “no negative gearing” — it was “no negative gearing, in exchange for a concessional rate on everything else”. An individual buying an established home after Budget night gets the restriction without the compensation.
Cash flow is a genuine constraint, not a psychological one. The tax refund from a negatively geared property is real money that helps service the loan. Take it away and the out-of-pocket cost of holding the same property rises immediately — the estimates put it at the equivalent of a 90 to 155 basis point increase in your mortgage rate, and the effect is largest for investors with high marginal rates, high leverage and low yields. That can be the difference between affording a property and not.
The comparison is not perfectly like for like. SMSF purchases are typically far less geared — lenders generally cap loan-to-value ratios well below what an individual can borrow, the big four have exited SMSF lending altogether, and specialist lenders charge more. A fund buying at 60% LVR with contributions flowing in is in a different cash-flow position from an individual buying at 90% and relying on the refund. The point still holds that neither gets negative gearing; it is the gearing level, not the investor, that differs most.
What the change does and does not do
It does not remove the deduction. Losses on established property bought after Budget night can still be offset against residential property income, and unused amounts carry forward indefinitely. If you build a portfolio, later profitable properties can absorb the earlier losses. It is a deferral, not a confiscation.
It does not touch existing properties. Anything held before 7:30pm on 12 May 2026 is grandfathered permanently.
It does not apply to new builds. Buy a new dwelling and you can still deduct losses against your salary exactly as before. The policy is pushing investors towards new supply, not out of property.
It does change the maths on yield. When the tax system was subsidising the holding cost, a low-yielding property in a high-growth suburb made sense. Without that subsidy, yield matters more relative to growth than it did — which is a genuine shift in what a good buy looks like.
The CGT change matters more than people think
Most of the attention has gone to negative gearing, but for a long-term investor the capital gains change may be the bigger number. From 1 July 2027 the 50% discount is replaced with inflation indexation plus a minimum 30% tax on gains, for individuals, trusts and partnerships.
Two consequences. First, the return on a long hold is taxed differently at the end, so the total-return calculation changes, not just the annual one. Second, and more usefully: superannuation is excluded from that change entirely. A fund keeps the one-third discount, giving an effective rate of roughly 10% in accumulation and 0% in pension phase.
The gap between holding an appreciating asset personally and holding it inside super has therefore widened considerably. That is worth modelling before assuming property is finished — the answer for some investors is not “do not buy” but “do not buy it in your own name”. Note the practical limit, though: from 10 August 2026 an SMSF can no longer borrow to buy residential property, so the super route now generally means buying outright. We set out the detail in our article on the Budget changes.
So is it worth it?
The honest answer is that it depends on things that have nothing to do with the Budget.
Can you hold it without the refund? If the answer is no, the property was marginal before and the tax system was carrying it. That is worth knowing regardless of what the rules say.
Does the yield stack up? Yield now has to do more of the work. A property that only made sense because of the deduction may not make sense at all.
What is your holding period? Property rewards long holds. If you are buying for five years or fewer, the CGT change and transaction costs weigh heavily.
Compared to what? The alternative is not cash. It is shares, or extra super contributions, or paying down the mortgage — each with their own tax treatment, some of which just became relatively more attractive.
If your answer to the first question is a confident yes and the second stacks up on its own, then the case for property is close to what it always was. If you needed the refund to make it work, the change has told you something useful about the investment rather than about the tax system.
What we are actually telling clients
Do not make a structural decision on the basis of a forecast. The commentary is running well ahead of the data, and the changes do not take full effect until 1 July 2027.
Model your specific position rather than reasoning from the headlines. The impact varies enormously with your marginal rate, your gearing level and your yield — someone on $90,000 with a 5% yield is in a completely different position from someone on $300,000 with a 3% yield.
Look hard at whether the right answer is a different structure rather than no property at all.
And if you already own investment property, do nothing hastily. You are grandfathered, and the most common expensive mistake in a period like this is selling a perfectly good asset because of a change that does not apply to it.
Quick answers
For many investors yes, but the case rests on yield, capital growth and leverage rather than the annual tax refund. SMSFs and discretionary trusts have never been able to offset property losses against personal income — losses are quarantined in the fund or trapped in the trust — and investors used both structures extensively anyway. What genuinely changes is cash flow: forecasters estimate the immediate effect as equivalent to a 90 to 155 basis point rise in the mortgage rate, with the largest impact on investors with high marginal rates, high leverage and low yields.
No, not against personal income. An SMSF is a separate entity and its losses are quarantined within the fund, so they cannot reduce tax on a member's salary. The trade-off has always been that the fund pays only 15% on income in accumulation phase and nothing in pension phase, and it keeps the one-third CGT discount that individuals lose from 1 July 2027.
Two reasons. They were buying yield, capital growth, leverage and asset protection rather than a tax refund. And in recent years many ordinary investors turned to these structures because personal borrowing capacity had tightened — SMSF lenders assess serviceability on the fund's income, being rental income shaded to around 80% plus employer contributions, rather than the member's personal salary, while company and trust borrowing sits outside the consumer credit framework. Those investors accepted no negative gearing as the price of continuing to buy.
Not in the way an individual can. A trust cannot distribute a loss to its beneficiaries — the loss is trapped inside the trust and carried forward until there is income to absorb it. This is essentially the same treatment now being applied to individuals who buy established homes after Budget night.
Forecasters expect an effect but disagree on size. Westpac has forecast a 34% fall in new investor activity with flat prices in the major capitals, while Morgan Stanley has flagged a possible 5% to 10% national price fall. These are forecasts rather than measured outcomes. Grandfathering of existing properties gives current investors a strong incentive to hold rather than sell, which works against a sharp correction.
Timing alone is a poor reason to buy. The negative gearing restriction already applies to established properties purchased after 7:30pm on 12 May 2026, so buying now does not avoid it — only properties held before that moment are grandfathered. New builds remain fully deductible against other income. The better question is whether the property works on yield and growth without the refund.
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