Updated June 2026
The 2026 Federal Budget sparked significant discussion about negative gearing and investment strategies. Much of the attention focused on property, but far less attention was given to what remained unchanged.
For Australians investing in shares, exchange traded funds (ETFs) and managed funds, many of the long-standing tax advantages remain available. Interest on investment loans can still be deductible, franking credits continue to provide valuable tax benefits, and strategies such as debt recycling remain relevant for many investors.
While tax should never be the sole reason for making an investment decision, understanding how these rules work can help investors build more effective long-term wealth strategies.
What Is Negative Gearing?
Negative gearing occurs when the costs associated with an investment exceed the income it generates.
For example, an investor may borrow money to purchase shares and incur:
Interest expenses
Investment loan fees
Management costs
If these expenses exceed the dividends or distributions received, the investment may generate a taxable loss.
In many circumstances, that loss can be used to reduce taxable income, potentially lowering an investor’s overall tax liability.
While negative gearing is often discussed in relation to property, it can also apply to share portfolios and managed investments.
Why Share Investing Has Received Less Attention
Most media discussion surrounding negative gearing focuses on residential property.
However, shares offer several characteristics that many investors find attractive:
Lower entry costs
Easier liquidity
Access to Australian and global markets
Franking credit benefits
For investors building long-term wealth, shares can form an important component of a diversified portfolio alongside property, superannuation and cash reserves.
The Tax Benefits and Capital Gains Tax Implications of Investing in Shares
Interest on Investment Loans
Where money is borrowed for the purpose of purchasing income-producing investments, the interest expense may be tax deductible.
This can reduce the effective after-tax cost of borrowing for investors on higher marginal tax rates, and where shares are geared the resulting losses can still be offset against salary or other income under the current rules, depending on a person’s tax position and personal income. That tax treatment for shares was left largely unchanged by the 2026 budget, unlike the new rules and restrictions aimed at residential property investors under existing arrangements. Investors should however remain aware of broader capital gains tax reform discussions.
However, investors should always remember that borrowing magnifies both gains and losses. A strategy should be driven by investment objectives and risk tolerance rather than tax outcomes alone, including any tax advantage, broader tax laws, or the effect on a future tax bill for private investors as the federal government considers changes.
Franking Credits
One of the unique advantages available to Australian share investors is the franking credit system.
When Australian companies pay tax on profits and then distribute dividends, shareholders may receive franking credits representing tax already paid by the company.
These credits can:
Reduce personal tax payable
Increase after-tax investment returns
Provide additional benefits for some superannuation investors
For many investors, franking credits remain one of the most valuable features of Australian share investing.
What Is Debt Recycling?
Debt recycling is a strategy that involves gradually converting non-deductible home loan debt into deductible investment debt.
While every strategy should be assessed based on personal circumstances, the general concept involves:
Reducing non-deductible home loan debt.
Re-borrowing funds for investment purposes.
Investing those funds into income-producing assets.
Using investment income and cash flow to continue reducing non-deductible debt.
For some homeowners, debt recycling can improve long-term tax efficiency while helping build an investment portfolio outside of superannuation.
However, debt recycling involves investment risk and should only be implemented with appropriate financial and tax advice.
Shares vs Property: Is One Better Than the Other?
Many Australians ask whether shares or property are the superior investment.
The reality is that both asset classes offer advantages, but the 2026 budget changed the tax treatment of some residential property investments, affecting property investors in the property market, while shares remained broadly under existing arrangements. Part of the comparison comes down to your tax position and any tax advantage attached to property investment, but that is not the only factor.
Benefits of Residential Property
Property may provide:
Leverage opportunities
Tangible ownership
Rental income
Potential long-term capital growth
Negative gearing changes mainly affect established residential properties, including an established property, existing residential property and existing properties, where rental losses, net rental losses and future residential property income are more constrained, while properties purchased as a rental property in new residential projects retain full benefits and continue supporting housing supply and overall housing supply outside some government housing programs through stronger residential property income settings.
Property investors should also understand how the proposed negative gearing changes may affect future returns.
After the budget, this may make higher-yield new builds more attractive to some property investors focused on property investment.
Benefits of Shares
Shares may provide:
Greater diversification
Lower transaction costs
Access to global markets
Easier liquidity
Dividend income
Franking credit benefits
From a tax perspective, shares and commercial property remain under existing arrangements for negative gearing and tax treatment, unlike established residential property, while other asset classes are also unaffected by those new limits. Share investments can still generate deductible losses without the new residential property restrictions, preserving a tax advantage for investors assessing them from a tax perspective.
Rather than viewing shares and property as competing investments, many successful investors use both asset classes as part of a diversified strategy.
The Importance of Liquidity
One often-overlooked benefit of share investing is liquidity.
Property transactions can take months to complete and often involve significant costs.
By comparison, listed shares and ETFs can generally be bought or sold quickly, providing investors with greater flexibility when circumstances change.
This can be particularly valuable for:
Pre-retirees
Retirees
Investors seeking income flexibility
Those managing unexpected expenses
Liquidity may not be the most exciting investment characteristic, but it can be one of the most valuable during periods of economic uncertainty.
Why Tax Should Not Drive Investment Decisions
Tax efficiency matters.
The new rules may change the relative tax position of some property investments versus shares.
However, making investment decisions solely because of tax benefits can lead to poor outcomes.
A successful investment strategy should be built around your financial position and personal income, not chasing a temporary tax advantage.
A successful investment strategy should be built around:
Financial goals
Time horizon
Cash flow requirements
Retirement objectives
The best portfolios are typically those that remain aligned with an investor’s broader financial plan rather than reacting to each tax reform debate in the wider tax system, especially when long-term wealth can look different from a tax perspective.
How Shares Can Fit Into a Broader Financial Plan
For many Australians, shares play an important role in complementing property and superannuation when recent tax reforms change the relative appeal and tax treatment of different asset classes:
Generating passive income
Funding retirement
Diversifying away from property
Enhancing superannuation outcomes
The appropriate mix of shares, property, superannuation and cash will vary depending on individual circumstances.
For long-term capital growth, superannuation funds may still be attractive from a tax perspective.
This is where personalised financial advice can add significant value.
Frequently Asked Questions
Can shares be negatively geared in Australia?
Yes. If the expenses associated with a share investment exceed the income generated, the investment may be negatively geared and may create a deductible tax loss that can reduce your personal income tax bill. In general, those share losses can still be offset against salary or other income. This tax treatment was not materially changed by the 2026 budget.
Are franking credits still available to Australian investors?
Yes. Franking credits continue to be available on eligible Australian share dividends and can provide valuable tax benefits for investors.
What is debt recycling?
Debt recycling is a strategy that seeks to convert non-deductible home loan debt into deductible investment debt by using borrowed funds to invest in income-producing assets.
Is debt recycling suitable for everyone?
No. Debt recycling involves investment risk and borrowing. Whether it is appropriate depends on your financial situation, objectives, risk tolerance and cash flow.
Are shares better than investment property?
Neither asset class is inherently better. Shares and commercial property remain under existing arrangements, unlike existing residential property targeted by the 2026 budget changes. That matters for property investment decisions because other asset classes keep their current tax treatment while established residential properties face a different set of rules. Existing properties and properties purchased before 12 May 2026 are grandfathered, while established residential property bought after that date faces restrictions. Shares offer diversification and liquidity, while property may provide leverage and rental income. Many investors benefit from holding both.
Why are franking credits valuable?
Franking credits represent company tax already paid and can reduce the amount of personal tax an investor needs to pay on dividend income.
Can shares help protect against inflation?
Historically, diversified share portfolios have provided long-term growth that has outpaced inflation, although investment returns are never guaranteed.
Should I invest in shares or pay off my mortgage?
The answer depends on factors such as your mortgage interest rate, risk tolerance, investment timeframe and broader financial goals. Many Australians benefit from a balanced approach.
How do shares fit into retirement planning?
Shares can provide long-term growth and income that may help support retirement objectives. They are often used alongside property and cash investments, and superannuation funds may remain attractive from a tax perspective because of the concessional tax treatment of investment earnings and capital gains.
Should I seek financial advice before borrowing to invest?
Yes. Borrowing to invest increases both potential returns and potential risks. Professional advice can help determine whether a strategy is appropriate for your circumstances. It is especially important where the new rules affect property investments differently from shares or commercial property. Advice should also consider your tax position and broader financial position, not just the immediate tax bill.
Final Thoughts
Even as the 2026 budget tightened negative gearing for some residential property investments, share investing continues to offer tax-effective features alongside diversification, liquidity, dividend income and franking credits.
While tax efficiency should never be the sole driver of an investment decision, understanding the tax treatment of shares within a broader financial strategy can help investors make more informed choices.
From 1 July 2027, changes to capital gains tax CGT apply more broadly across CGT assets and other asset classes, not just housing, so investors should review how the tax system and future tax reform settings may affect capital gains and the tax treatment of capital gains tax outcomes in their overall strategy.
Whether you are considering debt recycling, building an investment portfolio, preparing for retirement or simply exploring your options, a well-structured financial plan remains the foundation of long-term success.
At Money Path, we help Australians build personalised investment and wealth creation strategies that align with their goals, risk tolerance and long-term financial objectives.
