A potential tax change is quietly stirring debate across Australia’s property market. Behind the scenes, federal Treasury is reportedly examining possible reforms to negative gearing, a long-standing feature of the country’s tax system. If the proposal moves forward, it could affect hundreds of thousands of landlords who currently rely on the strategy when managing their investment properties.
A Proposed Cap on Negatively Geared Properties
One idea being considered is a cap limiting investors to negatively gearing only two properties. At present, there is no formal limit on the number of properties a landlord can negatively gear. Investors who hold multiple properties can offset losses from those investments against their other income, such as wages or business earnings. In simple terms, if the cost of owning a rental property — mortgage interest, maintenance, insurance and other expenses — exceeds the rent it generates, the investor can claim that loss as a tax deduction.
The practice has been common in Australia for decades and is widely used by property investors seeking long-term capital gains. Supporters argue that negative gearing helps encourage investment in rental housing. Critics, on the other hand, say it can inflate property prices by increasing demand from investors.
How Many Landlords Could Be Affected?
According to the latest data from the Australian Taxation Office (ATO), around 2.261 million Australians held an interest in at least one investment property during the 2022–23 financial year. The vast majority of investors own only one property. Approximately 1.623 million investors own a single investment property, while 423,400 own two. That means most landlords would remain unaffected if a two-property cap were introduced.
The sign of the Australian Taxation Office (ATO)
However, about 214,700 investors own three or more properties. These investors could be directly affected by the proposed change because they would no longer be able to apply negative gearing to additional properties beyond the limit. In total, Australian taxpayers report owning about 3.287 million investment property interests. Interestingly, almost a quarter of those properties are held by investors with three or more holdings, highlighting how concentrated ownership can become among larger investors.
Negative Gearing Is Still Widely Used
The ATO figures also reveal how widespread negative gearing remains within the housing market. Out of the 2.261 million property investors, roughly 1.114 million are negatively geared. That means almost half of all investment properties are currently operating at a loss that investors offset against other income. Across the market, about 1.593 million property interests — roughly 49.4 per cent — are negatively geared.
These numbers reflect the interest rate environment during the 2022–23 financial year, when the average payable interest rate on investor loans was about 4.71 per cent. Because mortgage rate increases often take time to flow through to borrowers, the real cost pressures may be slightly higher today.
Political Debate Around the Proposal
The potential reform has already sparked political debate. Opposition figures argue that changes could unfairly target ordinary Australians who have invested in property as a long-term financial plan. Some politicians point out that many landlords are not wealthy property tycoons but middle-income workers — tradies, nurses and small business owners — who purchased investment properties as a retirement strategy.
Critics of negative gearing, however, say the policy can worsen housing affordability by encouraging speculative investment and driving up property prices.
What Happens Next for Investors?
At this stage, the proposed cap remains under Treasury modelling, meaning no official policy change has been announced. Governments have debated negative gearing reforms several times over the past decade, but significant changes have proven politically sensitive. Still, with housing affordability now dominating public debate, the issue has once again moved into the spotlight.
For Australia’s millions of landlords, the outcome of these discussions could shape how property investment works in the years ahead — and potentially reshape one of the country’s most controversial tax policies.
