Negative Gearing Changes 2026: What They Mean for Commercial Property Buyers

Since the 2026-27 Federal Budget, one question has dominated the conversations we've been having with buyers: does negative gearing still apply to commercial property?

The short answer is yes.

The government removed negative gearing on established residential investment property. Commercial property was left untouched. For the full picture of what the budget did across the asset class, read our breakdown of what the 2026 federal budget means for commercial property.

That single distinction has set off completely predicatable - capital that used to sit in residential is now looking for a new home, and a lot of it is pointing at commercial for the first time. Much of that interest is for the wrong reason.

Does negative gearing apply to commercial property?

Yes. Negative gearing applies when the cost of holding an asset, interest plus outgoings, exceeds the income it produces, and the resulting loss is offset against your other taxable income. After the budget, residential investors buying established stock lost that ability from 7:30pm AEST on 12 May 2026. Commercial property, including industrial, medical and allied health, large format retail and office, kept it in full.

One point worth understanding before you act on it. Commercial property is often positively geared, not negatively. Yields are typically higher than residential, so a well-bought commercial asset frequently produces income above its holding costs from day one. The negative gearing concession matters most in the early years of a heavily leveraged purchase, or during a vacancy or capital works. For most quality commercial assets it is a feature of ownership, not the reason to buy.

What did the budget actually change in 2026

Two changes matter for commercial buyers:

• Negative gearing: abolished on established residential investment property, retained in full on commercial.

• Capital gains tax: from 1 July 2027 the 50% CGT discount is replaced by cost base indexation plus a 30% minimum tax on the real gain. This applies to commercial as well as residential, with gains accrued before that date treated under the existing rules.

The CGT change is the genuine headwind, and it deserves proper modelling rather than a headline reaction. We cover it in detail in our 2026 federal budget analysis.

Why capital is now flowing toward commercial

The maths has moved. Residential lost a tax concession that commercial kept. For an investor weighing the two, commercial now carries a structural tax advantage it did not have twelve months ago. Add an infrastructure and population pipeline that supports industrial and healthcare demand, and the relative case writes itself.

That is the part the commentary gets right. Here is the part it misses.

The mistake: buying the tax benefit instead of the asset

Our view is direct.

A large amount of capital is about to flow into commercial property at low price points, and into poor quality stock, purely to access a tax benefit. We do not think it should be done.

Negative gearing is not a reason to buy. It is a feature of how an asset is financed and taxed. It does nothing to fix a short lease, a weak tenant, a secondary location, or a building the market has already discounted for good reason. A deduction on a bad asset is still a bad asset. The annual tax saving is a rounding error against the capital you lose when a single tenant vacates and the building sits empty for nine months or more.

The buyers most drawn to the budget's shift are often those with $500,000 to $1.5M to deploy. Quality commercial, meaning strong tenant covenants, long and well-structured leases, and locations that hold their value through a cycle, generally starts around $2.5M. Below that threshold the available stock is thinner and weaker: shorter leases, softer tenants, compromised locations, or structural problems institutional buyers have already walked past. Chasing a deduction pushes inexperienced capital straight into exactly that pool.

The fundamentals still apply

Nothing in the budget changed what makes a commercial asset good or bad. The fundamentals are unmoved:

• Tenant covenant: who is paying the rent, and how secure their business actually is.

• Lease structure and WALE quality: not just how long the lease runs, but how the expiries are spread and structured. The headline number is the least useful part.

• Location and building quality: the characteristics that hold value, and re-lease quickly, through a downturn.

• Re-leasing risk: a vacant commercial building can take six to twelve months to fill, sometimes longer. That holding cost dwarfs any annual tax benefit.

Yield is an outcome. Capital protection is the discipline. A tax concession sits a long way down that list, and it never moves up it.

How to buy commercial well in this environment

The budget has not lowered the bar for doing commercial properly. It has raised the number of people about to do it badly. The buyers who do well from here will be the ones who:

• Set clear asset criteria before they think about tax.

• Underwrite the asset on its fundamentals, independently of the selling agent's numbers.

• Budget for the real costs and timelines of commercial ownership, including vacancy.

• Get independent buy-side representation, an agent who works only for the buyer and is paid to reject more than they recommend.

  
  

If you are weighing commercial for the first time, start here: our commercial property due diligence checklist sets out what we assess on every acquisition. And if you want representation that works only for you, Vanta advises buyers in Melbourne, Sydney Brisbane, and nationally.

The bottom line

The 2026 budget made commercial property more attractive relative to residential. It did not make every commercial asset worth buying, and it certainly did not make a weak one worth buying for the deduction. Negative gearing is a feature of a good acquisition, never the reason for one.

Buy the asset on its fundamentals and the tax treatment follows. Do it the other way around and the budget will have done you no favours at all.

Frequently asked questions

Does negative gearing still apply to commercial property in Australia?

Yes. The 2026 budget removed negative gearing on established residential investment property only. Commercial property, including industrial, medical and allied health, large format retail and office, retains full negative gearing treatment. Investors can still offset interest and holding costs against other income.

Is commercial property usually negatively geared?

Often not. Commercial yields are typically higher than residential, so many quality commercial assets are positively geared or income neutral from the outset. Negative gearing tends to apply in the early years of a heavily leveraged purchase, or during vacancy or capital works. Buying commercial specifically to create a loss is usually a sign of a weak asset or poor structure.

Do the 2026 CGT changes apply to commercial property?

Yes. From 1 July 2027 the 50% CGT discount is replaced with cost base indexation and a 30% minimum tax on the real gain. It applies to commercial as well as residential. Gains accrued before that date are treated under the existing rules. For longer hold periods the indexation mechanism can produce a comparable or better outcome, so model both with your accountant before timing a sale.

Should I buy commercial property just for the negative gearing benefit?

No. Negative gearing does not fix a poor asset. Quality commercial property is bought on tenant covenant, lease structure, location and building quality. A tax deduction on a weak asset does not protect your capital. Buy on the fundamentals first, and treat the tax treatment as a consequence, not a strategy.

Vanta Advisory is a commercial buyers agent operating exclusively on the buy side. We advise SME business owners and investors across industrial, medical, allied health and large format retail assets from $2.5M to $30M across Victoria, New South Wales, Queensland, South Australia and Western Australia.

This article is general commentary only and does not constitute financial or tax advice. Speak with your accountant or tax adviser regarding the specific implications of the 2026 budget changes for your circumstances.