Since the May 2026 Federal Budget passed into law on 26 June 2026, one question has been on repeat: “Is gearing dead?”
The short answer is no. Gearing remains available in Australia, although the rules have tightened around one specific asset class, established residential property. Other pathways may still be available, subject to the structure used, an investor’s objectives, risk capacity, cashflow and timeframe.
Understanding where the rules have changed, where gearing remains available, and how the risks compare with the potential benefits can help investors make more informed long-term decisions.
Gearing is More Familiar Than You Think
Most Australians already understand gearing, they just don’t call it that. Every home loan is a form of gearing. So is every investment property loan.
The important distinction:
- A home mortgage is a lifestyle loan. Interest is not tax deductible, and there is no tax advantage. It funds where you live.
- An investment property loan is borrowing to invest. It is often written at a high LVR, commonly 70 to 80 per cent, which is why investment properties can place significant demand on personal cashflow, especially in the early years.
Gearing simply extends the same idea beyond property, into other investment assets.
What can you gear into?
The following are asset types, not product recommendations:
- Shares, giving you part ownership of a listed company.
- Managed funds, where investors pool money and a professional manager buys a diversified basket of shares, property, or other assets.
- ETFs (Exchange Traded Funds), a lower-cost, listed cousin of managed funds. ETFs trade on the ASX like a share and typically track an index.
- Commercial property or infrastructure, such as offices, warehouses, airports, or toll roads.
Positive, neutral, and negative gearing explained
Three possible outcomes:
- Positive gearing: the investment earns more than it costs to hold.
- Neutral gearing: income and costs roughly match.
- Negative gearing: costs exceed income; the shortfall may reduce taxable income, and the strategy relies on capital growth over time.
Illustrative example only (not a forecast or projection of actual returns):
Assume a $200,000 investment loan at 6 per cent p.a., so $12,000 of interest per year.
- Positive gearing illustration: a 7 per cent income yield ($14,000) leaves a $2,000 surplus, taxable at the investor’s marginal rate.
- Neutral gearing illustration: a 6 per cent income yield ($12,000) matches the interest cost.
- Negative gearing illustration: a growth-focused 3 per cent income yield ($6,000) leaves a $6,000 shortfall. That shortfall may be deductible against other income, subject to the tax rules that apply.
Figures are for education only and do not represent past or expected performance.
Capital growth is not real until you sell
Cashflow reflects how the investment is going year to year. Capital growth reflects what the asset might be worth on paper. The two behave very differently.
Growth is unrealised until the day the asset is sold. Values rise, fall, and rise again during the holding period, and none of it is locked in until exit. That is why the plan for how and when to sell matters as much as what to buy.
Three things worth considering:
- Timeframe: growth-focused investments generally need 7 to 10 years or more to move through market cycles.
- Exit plan: having a rough view of when and why you might sell helps guide the structure you set up today.
- CGT on the way out: when you sell, any gain is added to your assessable income. The structure, such as personal name, trust, company, or super, can change the after-tax outcome. CGT rules also change from 1 July 2027, as outlined below.
The four ways Australians borrow to invest
Rates below are indicative only, at the time of writing, and are not offers of credit.
- Borrowing against your home. Often a lower-cost borrowing option, around 6 per cent p.a. The security is your home. If the investment falls in value, you can lose the investment and still owe the loan. If the shortfall cannot be repaid, the family home is exposed.
- Borrowing against an investment property. The security is the investment property. You can lose the property, and if the sale does not cover the loan, you may still owe the shortfall. Provided the loans are structured separately and the home has not been used as a guarantee, the home is not directly on the line.
- Margin lending, secured against shares, ETFs, or managed funds. Retail rates around 9.5 to 10.5 per cent p.a. If markets fall sharply and a margin call cannot be met, the underlying shares may be sold to repay the loan.
- Internally geared managed funds or ETFs. Borrowing sits inside the fund at institutional rates, currently in the low to mid single digits, plus a management fee. Total cost to the investor may be below retail margin loan rates, depending on the fund and fee structure. There is no personal loan and no investor-level margin call. Risk is limited to the amount invested.
The most important lens: funding and cashflow
Gearing is not really an investment decision. It is a funding and cashflow decision, and in some cases, an income tax reduction consideration as well.
In recent years, both share and property markets have gone through periods where asset values sat below the original purchase price. Rates rose. Rents softened. Dividends were cut. Investors with borrowings still had to service the interest, every single month.
A key consideration is stable, surplus cashflow: enough to keep servicing the loan comfortably when markets dip, income drops, or rates rise, without needing to touch the investment. Any tax benefit should be considered a secondary factor, not the primary reason to gear.
What has changed after the 2026 Budget
The May 2026 Federal Budget reshaped residential property investing. The changes were legislated on 26 June 2026 and commence 1 July 2027.
Negative gearing (residential property only):
From 1 July 2027, negative gearing on residential property is limited to new builds. Losses on established residential properties acquired after 7:30pm AEST on 12 May 2026 are quarantined and only deductible against residential property income and future gains. Properties acquired before that time are grandfathered. Widely held trusts, most managed investment trusts, and superannuation funds, including SMSFs, are excluded from these changes.
CGT (broader scope):
From the same date, CGT rules change for individuals, trusts, and partnerships, across all asset classes, including shares, ETFs, managed funds, and property. The 50 per cent discount is replaced with CPI cost base indexation and a minimum 30 per cent tax rate on realised gains. Importantly, only gains accruing after 1 July 2027 are affected. Gains accrued before that date retain the existing 50 per cent discount, pro-rated on a time basis. Companies and superannuation funds keep their current CGT settings. Investors in new build residential property will be able to choose between the current 50 per cent discount or the new arrangements.
Where gearing remains available, unchanged
- Shares, ETFs, and managed funds
- Commercial property and infrastructure
- Complying superannuation funds, including SMSFs
- New build residential property
- Existing residential properties acquired before 12 May 2026, where grandfathering applies
The reforms affect some investment structures differently from others. Investors should carefully consider their objectives, cashflow capacity, and risk tolerance before adopting a geared strategy.
Four questions worth considering
- Are you investing for cashflow or capital growth?
- What is your timeframe, and when might you sell?
- What structure suits: personal name, trust, company, or super?
- How will CGT be managed on the way out?
Turning strategy into practical planning
Gearing may be appropriate for some investors where risk capacity, cashflow and investment timeframe align with the strategy. A geared strategy is generally considered alongside advice from relevant professionals, such as a financial planner setting the strategy, a lender or mortgage broker structuring the borrowing, and an accountant managing the tax outcomes.
If you have stable, surplus cashflow and would like to explore how gearing might fit your long-term goals, you are welcome to book a complimentary 20-minute call.
Frequently Asked Questions
Is gearing still available in Australia after the 2026 Budget?
Yes. Gearing remains available in Australia, although the rules have changed for some residential property investments. Other investment options, including shares, ETFs, managed funds, commercial property and complying superannuation funds, may still allow geared investment strategies, depending on your circumstances.
What changed for negative gearing after the 2026 Budget?
From 1 July 2027, negative gearing on established residential properties acquired after 12 May 2026 is restricted under the new legislation. New build residential properties and certain existing arrangements may continue to qualify under different rules.
What is the difference between positive, neutral and negative gearing?
Positive gearing occurs when an investment generates more income than it costs to hold. Neutral gearing is when income and expenses are roughly equal. Negative gearing occurs when investment costs exceed the income generated. The overall impact of a geared investment will depend on an investor’s cashflow position, investment outcomes, tax circumstances and the applicable tax rules.
Is borrowing to invest suitable for everyone?
No. Borrowing to invest involves risk and may not be appropriate for everyone. Factors such as your cashflow, investment timeframe, risk capacity and financial objectives should be considered before adopting a geared investment strategy.
Should I seek financial advice before using a gearing strategy?
Because borrowing to invest can affect your cashflow, tax position and long-term financial outcomes, it’s generally recommended to seek personal financial advice before implementing a geared investment strategy.
General Advice Warning:
This article contains general information only. It has been prepared without taking into account your objectives, financial situation, or needs. Before acting on any information, please consider its appropriateness having regard to your own circumstances and seek personal financial advice. Past performance is not a reliable indicator of future performance.
This article is not tax or credit advice. Tax outcomes depend on your individual circumstances and current law. Interest rates referenced are indicative only, at the time of writing, and are not offers of credit. Please seek advice from a registered tax agent for tax matters and a licensed credit provider for credit matters.
Author: Stephanie Yeung, Certified Financial Planner®
References
The following references are provided for general information and source transparency only. They do not constitute product recommendations, tax advice, credit advice or an endorsement of any provider. Rates, tax guidance and product information may change, and readers should refer to the relevant official source or disclosure document before making decisions.
- Australian Taxation Office, Tax reform – Boosting home ownership – Reforming negative gearing and capital gains tax, last updated 29 June 2026, accessed 14 July 2026.
- Australian Government, Budget 2026–27 Tax Explainer: Negative Gearing and Capital Gains Tax Reform, May 2026, accessed 14 July 2026.
- Parliament of Australia, Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, Bills homepage and passage history, accessed 14 July 2026.
- Federal Register of Legislation, Treasury Laws Amendment (Tax Reform No. 1) Act 2026, No. 49 of 2026, assented to 26 June 2026, accessed 14 July 2026.
- Reserve Bank of Australia, Statistical Tables: Indicator Lending Rates, current release, accessed 14 July 2026.
- NAB Margin Loan, Product Disclosure Statement and current interest rates, cited for general market reference only and not as a product recommendation, accessed 14 July 2026.
- Betashares, Geared Fund Range Product Disclosure Statements, cited for general product-structure reference only and not as a product recommendation, accessed 14 July 2026.
