From 1 July 2027, negative gearing will generally be limited to newly built residential properties, with established properties purchased after 12 May 2026 no longer able to offset losses against wages. This means anything already held or bought before that date is untouched, and new residential builds stay firmly in play. Commercial property isn’t subject to that restriction, so for investors who already hold residential and are thinking about their next step, it simply opens another door, and in Tasmania it comes with the added satisfaction of putting your money directly behind local business activity.
How the context is changing
Residential property has traditionally offered investors a combination of rental income, negative gearing benefits and the potential for long-term capital growth, and those fundamentals haven’t gone anywhere for the majority of owners, though under the new settings some of those benefits will be more limited for buyers of established residential property specifically. Commercial property continues to operate under the existing negative gearing rules, subject to the investor’s circumstances and ownership structure, and it may also offer stronger income returns, longer lease terms, scheduled rent reviews, tenant contributions to outgoings and diversification within a property portfolio, which is really the point: diversification only means something if you already hold residential to diversify from.
How commercial property works
Commercial property has not been excluded from the capital gains tax reforms, so it’s worth being clear that this isn’t a loophole story. From 1 July 2027, the existing 50 per cent CGT discount will be replaced with an inflation-adjusted cost base and a minimum 30 per cent tax rate on real capital gains, applying prospectively to gains accrued from that date, which means the potential advantage for commercial property is not based on a CGT exemption at all. It relates more closely to how commercial assets tend to generate returns, because while residential investment is often heavily influenced by future capital growth, commercial property performance is generally more closely connected to rental income, lease structure, and the tenant’s financial position, and these two profiles complement each other rather than compete.
What this means in Tasmania
Commercial property in Tasmania is closely connected to the businesses and communities occupying it, so an investment may be a warehouse supporting a local trade or logistics business, consulting rooms providing an essential service, a retail tenancy occupied by an established operator or an office accommodating a growing professional firm. Investors are buying more than land and a building, they are also investing in the activity taking place within it, and that creates opportunity while also calling for local understanding, because Tasmania is not one commercial market. Tenant demand, vacancy periods and future leasing potential can vary significantly between Hobart, Launceston and regional centres, and the factors supporting an industrial property in northern Tasmania may be very different from those influencing a Hobart office, suburban retail tenancy or regional hospitality asset. Location remains important, but so do access, parking, visibility, surrounding businesses, building condition and the property’s ability to accommodate another tenant in the future.
The lease deserves equal attention
Residential investors have long known to assess location, condition and likely capital growth, and that discipline carries across, though for commercial investors the lease sits alongside it as an equally important piece. Before purchasing, investors should understand the tenant’s financial position and trading history, the remaining lease term, available options, rent review structure, responsibility for outgoings and likely future maintenance or capital expenditure, and they should also consider how easily the property could accommodate another tenant if the current occupier leaves. A prominent or visually impressive building does not automatically represent a strong investment, and equally a straightforward property with a secure tenant, an appropriate lease and a proven location may offer value that is less obvious from the street, which is why the opportunity needs to be reviewed as a whole: the property, tenant, lease, location and price together.
Income is only part of the equation
Commercial property may provide stronger income returns, but it can also involve longer vacancy periods and greater exposure to changing business conditions, and this is where the steady, familiar rhythm of a well-managed residential portfolio earns its place. Financial requirements may be more demanding; GST and ownership structures can be more complex; and a property designed for one specialised occupier may require substantial work before it can be leased to another, so the opportunity may be genuine yet still require considered due diligence. Commercial property should not be viewed as a direct replacement for residential investment simply because the tax settings have changed; it should be assessed on its own merits and as one part of a broader strategy that most often still has residential at its core.
A reason to reassess, not rush
The changing tax environment may encourage more Tasmanian investors to consider commercial property for the first time, and that broader consideration is worthwhile, though for most it will mean adding to what they already hold rather than moving away from it. Commercial property can provide income, longer-term leases and portfolio diversification, and it gives investors the opportunity to participate more directly in Tasmania’s business economy, which sits comfortably next to the growth and stability that residential has provided for decades. Harrison Agents’ commercial sales team represents retail, office, industrial, warehouse and land assets across Tasmania, our commercial property management team supports owners throughout the ongoing investment lifecycle, and our residential team continues to do the same for residential investors, so whichever direction suits your circumstances, the advice comes from the same place.
This article provides general information only and does not constitute taxation, legal or financial advice. Investors should obtain independent advice based on their circumstances.
