Beginner's Guide to Tax and Property

The rules around investment property tax changed in the middle of last year.

If you bought an established home to rent out after 12 May 2026, you can only deduct rental losses against income from other residential properties. If you bought before that date, or if you bought a new build, the old rules still apply. Capital gains treatment also shifted from 1 July 2027. Instead of the 50 per cent discount, investors now index the cost base to inflation and pay tax on above-inflation gains only, with a minimum 30 per cent rate applying to those gains.

Those changes have rearranged how investment loans perform over time, and that matters whether you are holding a property in Surrey Hills or looking at an apartment in South Yarra. The tax structure now influences the loan structure more directly than it used to.

How the Negative Gearing Rules Changed for Properties Bought After 12 May 2026

Losses from established residential investment properties purchased after 12 May 2026 can only be offset against income from other residential properties. Excess losses carry forward to future years. The change does not affect properties you already held at that date, and it does not affect new builds purchased after that date. Those two categories still allow full deductibility against salary, business income or any other assessable income.

Consider a buyer who purchased an established townhouse in Surrey Hills in August 2026 as a rental property. The loan is $950,000 at a variable rate. Interest costs are roughly $60,000 a year. Rental income is $52,000. That creates an $8,000 annual loss before accounting for other deductible expenses like rates, insurance and management fees. Under the new rules, that $8,000 loss can only be deducted against income from other residential rental properties or capital gains on residential property. If the buyer has no other property income, the loss is quarantined and carried forward.

If the same buyer had purchased in April 2026, before the cut-off, the $8,000 loss would reduce their taxable salary or business income immediately. That difference compounds over a holding period, particularly in the early years when interest costs are highest and equity has not yet built.

What the Capital Gains Tax Changes Mean for Property Sold from 1 July 2027 Onward

From 1 July 2027, the 50 per cent CGT discount no longer applies to gains accruing on residential investment property. Instead, you index the cost base to inflation and pay tax on real gains only, with a minimum 30 per cent tax rate applying to those indexed gains. For new builds, you can choose between the old discount method and the new indexed method when you sell.

In a scenario where an investor purchased an established investment property in Surrey Hills for $1,400,000 in September 2026 and sells in late 2029 for $1,680,000, the capital gain is $280,000. Under the new indexed method, if inflation over that period totalled 8 per cent, the indexed cost base becomes roughly $1,512,000. The taxable gain is then $168,000 rather than $280,000. Tax is calculated on that indexed amount at a minimum rate of 30 per cent, which results in $50,400 in CGT. Under the previous discount method, the taxable gain would have been half of $280,000, or $140,000, and taxed at the investor's marginal rate. The outcome depends on the investor's marginal rate, the inflation rate over the holding period, and the actual appreciation.

For a new build purchased after 12 May 2026, the investor retains the option to apply either the discount or the indexed method at the point of sale. That flexibility is a material advantage when structuring finance for new construction or off-the-plan purchases, and it is one reason construction loans for new builds continue to attract investor interest despite the tighter deductibility rules on rental losses.

How Loan Structure Responds to the New Tax Settings

Loan structure used to focus on serviceability, offset access and rate. Now it also needs to account for quarantined losses and indexed gains.

A split loan between fixed and variable components still makes sense for stability and flexibility, but the size of the variable portion often shifts upward when a buyer wants to link an offset account to reduce taxable interest without locking funds away. If rental losses are quarantined, the tax benefit of paying down principal early is reduced. Keeping accessible equity in offset can be more useful, particularly if you plan to acquire another property and want to redirect those funds into a deposit without triggering a refinance.

Interest-only terms are still available on investment loans, and we see them used more deliberately now. When losses cannot be deducted against salary, there is less immediate tax relief to soften the cash flow impact of principal and interest repayments. Interest only loans hold the repayment steady and preserve cash for other investments or for funding a second acquisition where losses can be used more effectively. The maximum interest-only period is typically five years, after which the loan reverts to principal and interest unless you apply to extend or refinance.

Owner-Occupied Loans and the Interaction with Investment Property Tax Planning

Owner-occupied loans are not affected by the negative gearing or CGT changes. But they do interact with investment property tax planning in one specific way: debt recycling.

Debt recycling involves using equity in your home to fund an investment purchase, then redirecting your surplus cash flow to pay down the non-deductible owner-occupied debt faster while leaving the deductible investment debt in place. Under the new rules, the deductibility of that investment debt is still intact if the property was purchased before 12 May 2026 or if it is a new build. If the property was an established purchase after that date, the interest is only deductible against other residential property income, which reduces the tax benefit but does not eliminate the strategy entirely if you hold or plan to acquire additional properties.

For buyers in Surrey Hills looking to upgrade from a smaller home to a larger family residence, upgrading your house often involves holding the first property as a rental. If that first property was purchased as an owner-occupied home before 12 May 2026 and is later converted to an investment, the negative gearing rules that apply are based on the date it was first used to produce income, not the original purchase date. That creates a narrow window where converted properties may still fall under the old rules, depending on when the租 tenancy begins.

State Stamp Duty Settings and How They Layer with Federal Tax Rules

Victoria offers a full stamp duty exemption on properties up to $600,000 for first home buyers, with a concession on properties between $600,001 and $750,000. That applies to both new and established homes, provided the buyer moves in within 12 months and lives there for at least 12 continuous months. The First Home Owner Grant of $10,000 applies only to new homes valued under $750,000.

For an investment purchase, no duty concession applies. A $1,400,000 established property in Surrey Hills attracts stamp duty of roughly $79,070. That cost sits alongside the federal tax settings and affects the total capital required at settlement. It does not change the way rental income or capital gains are taxed, but it does increase the cost base for CGT purposes, which under the new indexed method means a higher starting point before gains are calculated.

First home buyers using the Australian Government 5% Deposit Scheme can access Victorian stamp duty relief and the federal guarantee together, provided the property is under the applicable price cap. In Victoria, that cap is $950,000 in Melbourne and regional centres. Surrey Hills falls within that definition. A first home buyer purchasing at $900,000 with a 5 per cent deposit avoids LMI through the government guarantee and pays no stamp duty under the state concession. That combination reduces the upfront capital requirement significantly and allows buyers to enter the market sooner without waiting to save a 20 per cent deposit.

Where Pre-Approval and Loan Structure Planning Happen Together

Pre-approval gives you a borrowing limit and a rate indication. Loan structure planning decides how that limit is carved up between fixed, variable, offset-linked and interest-only components, and whether you split the facility across multiple accounts to separate owner-occupied and investment debt.

When tax settings change, structure planning becomes more involved. A buyer purchasing an investment property in Surrey Hills after 12 May 2026 might choose a smaller loan amount and a larger deposit to keep the annual loss within a range they can carry without immediate tax relief. Alternatively, they might delay the purchase and redirect that capital toward a new build in Hawthorn or Camberwell, where rental losses remain fully deductible and the CGT treatment at sale is more flexible.

Home loan pre-approval locks in your structure before you sign a contract. It also confirms serviceability under the lender's buffer, which is currently 3.0 percentage points above the loan rate. APRA requires all banks to assess your ability to service the loan at that higher rate, regardless of whether you fix, and regardless of whether rental income is positive or negative. If rental losses are quarantined and you cannot deduct them against salary, the lender does not give you credit for a tax benefit that no longer exists. That tightens serviceability slightly compared to the previous settings, particularly for buyers with high loan-to-income ratios.

Call one of our team or book an appointment at a time that works for you. We will walk through your income, your deposit, your intended use, and the tax treatment that applies to your scenario. Then we will structure the loan to suit.

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