Millions of property investors could face new limits on negative gearing, with the Albanese Government considering capping the tax break to just two investment properties as it looks to repair the budget deficit.
Treasury is reviewing possible changes to negative gearing alongside reforms to the capital gains tax (CGT) discount for existing properties, amid mounting pressure over housing affordability.
In August 2025, Treasurer Jim Chalmers declined to rule out restricting negative gearing or the CGT discount. That stance marked a shift from Labor's position following its 2019 election defeat, when Prime Minister Anthony Albanese ruled out making changes to the concessions while in Opposition.
Negative gearing allows property investors to deduct losses on an investment property, such as interest payments and maintenance costs from their taxable income.
Under rules introduced in 1999 by the Howard government, investors pay tax on only half the capital gain made on an asset held for more than 12 months, effectively granting a 50 per cent CGT discount.
Before those changes, capital gains were instead indexed to inflation rather than automatically discounted.
The independent Parliamentary Budget Office estimates the CGT discount will cost the budget $7.9 billion in forgone revenue in the 2027 financial year alone.
Asked again this week, Chalmers declined to rule out changes to housing investment tax settings.
Treasurer Jim Chalmers has not ruled out negative gearing reform as he tries to improve the budget deficit
Treasury is reviewing negative gearing limits along with changes to the capital gains tax
'We're considering other options for the budget, as we always do at this time of the year,' Chalmers said.
'We don't finish the budget in February, we finish the budget in May, and any next steps in any of these areas would be a matter for cabinet in the usual way.'
Labor previously took plans to halve the CGT discount to 25 per cent to the 2016 and 2019 elections, but both campaigns ended in defeat.
Sources told The Australian that Treasury was examining the impact of limiting negatively geared properties to just two. The number is currently unlimited.
Australian Taxation Office data from the 2023 financial year revealed more than one million Australians negatively gear property, with a third of them owning more than one investment property.
Last year, the Australian Council of Trade Unions called for negative gearing and the CGT discount to be limited to just one investment property.
Real estate groups and economists have argued that reducing the number of properties investors can negatively gear could reduce the availability of rental housing.
Chalmers is seeking additional revenue to offset growing spending commitments. A reduction in negative gearing tax deductions could strengthen the budget by billions of dollars.
Investors currently pay tax on only half the profit they make when selling an investment property held for more than a year
Reducing negative gearing could reduce investor demand and decrease housing supply
The Parliamentary Budget Office estimates revenue foregone due to negative gearing could be about $14.1 billion by 2035–36, while about $6.5 billion in revenue was lost in the 2025 financial year alone.
The Grattan Institute wants the capital gains discount halved, along with limiting negative gearing so rental losses can no longer be offset against income, claiming it would strengthen the budget bottom line by around $11 billion annually.
It also claimed rents wouldn't change much and housing markets wouldn't collapse.
Since July 2024, the Albanese government and the states have had a plan to build 1.2 million homes over five years, hoping that will boost housing supply and address affordability issues.
The Centre for Independent Studies' Robert Carling said reducing negative gearing or CGT concessions would reduce investor demand and decrease housing supply.
'Owner-occupier demand would not neatly fill the void left by departing investors, as the types of housing favoured by investors and owner-occupiers are not perfectly interchangeable,' Mr Carling said.
He said negative gearing, along with the CGT discount, had become a 'whipping boy' for housing affordability debates, which are baseless.
'Cutting the discount is variously seen as a key plan for tax reform, a revenue raising measure, the key to lowering house prices and the solution to intergenerational and vertical inequity. And our submission argues that it is none of those things,' Mr Carling said.
