The Pros and Cons of Tax and Property for Home Loans

Understanding how tax and property rules interact with your home loan can save you thousands of dollars over the life of your loan or cost you that much if you get it wrong.

The relationship between tax treatment, government schemes, and lending decisions has shifted substantially over the past year. Whether you're buying your first home in Perth or considering an investment property, the rules that determine how much you can borrow, what you'll pay in tax, and what help you can access have all changed. This article walks through the current framework so you can make a decision that holds up beyond settlement.

How Negative Gearing Changes Affect Borrowing Capacity

From the 2027-28 income year, losses on established residential investment properties purchased after 12 May 2026 can only be offset against other residential property income. The old rule allowed you to offset those losses against salary, which reduced taxable income and improved serviceability in some lender assessments.

If you're buying an investment property now and plan to rely on negative gearing to support your borrowing capacity, lenders will assess your application based on the new rules. Consider a Perth investor buying a unit in Subiaco at the current median. Under the grandfathering provisions, any property you held before 12 May 2026 keeps full deductibility. But new purchases are assessed differently. Some lenders are now calculating post-tax cash flow assuming losses stay within the property portfolio rather than being offset against wage income. That can reduce your borrowing power by tens of thousands of dollars depending on your marginal tax rate and the projected rental yield.

New builds remain fully exempt from the quarantining rule. Losses from a newly constructed home can still be deducted against all income, including wages. For buyers choosing between an established property and a new build, the tax treatment now has a direct impact on how much a lender will approve.

Capital Gains Tax: The Switch from Discount to Indexation

From 1 July 2027, the 50 per cent capital gains tax discount is replaced by cost base indexation and a 30 per cent minimum tax rate on gains accruing from that date. You'll index the cost base of your property in line with inflation and pay tax only on above-inflation profit.

This change applies to gains accruing after 1 July 2027. If you purchased your investment property in early 2026 and sell it in 2032, you'll use the 50 per cent discount for gains that accrued up to 1 July 2027 and indexation for gains after that date. The ATO has published guidance on apportionment, but it adds a layer of record-keeping that wasn't required under the old system.

For buyers of new builds, both the 50 per cent discount and the indexation method will be available as a choice at the time of sale. That flexibility is valuable in a rising inflation environment. If inflation runs higher than expected over your holding period, indexation may deliver a lower taxable gain than the discount method. The choice is made at disposal, so you're not locked in at purchase.

First Home Buyer Schemes and How They Sit with Your Loan

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5 per cent deposit without paying lenders mortgage insurance. Housing Australia guarantees up to 15 per cent of the property value to the participating lender. In Perth, the price cap is $850,000 for the metropolitan area.

Applications are made through a participating lender, not directly to Housing Australia. The panel includes major banks and a growing number of non-major lenders. Some lenders offer variable rate, fixed rate, and split loan products under the scheme. Others restrict you to a variable rate. You need to confirm product availability with your lender before you assume a particular loan structure is available.

Help to Buy is the shared equity scheme where the government contributes up to 40 per cent of the purchase price for a new home and up to 30 per cent for an established home. A minimum 2 per cent deposit is required. Income limits from 1 July 2026 are $103,000 for individuals and $165,000 for joint applicants. You cannot combine Help to Buy with the 5% Deposit Scheme, but you can generally use state stamp duty concessions with either scheme depending on the program.

In Western Australia, the First Home Owner Rate of duty applies statewide from 7 May 2026. No duty is payable on homes valued up to $600,000. A concessional rate applies on homes between $600,001 and $800,000. For vacant land, no duty applies up to $450,000 with a concession up to $550,000. The link between the First Home Owner Grant and the stamp duty concession has been removed, so you can access the duty concession even if your purchase exceeds the $800,000 grant cap.

Investment Loan Structures and Interest Deductibility

An offset account linked to your owner-occupied home loan reduces the interest you pay without affecting your ability to claim deductions elsewhere. An offset account on an investment loan reduces your interest expense, which also reduces your deduction. If you're planning to move from an owner-occupied property into an investment property later, keeping the loan structure aligned with the intended tax treatment from the outset avoids complications.

In our experience, buyers who plan to convert their home into a rental within a few years often set up the loan as principal and interest from day one, even if interest-only would reduce repayments in the short term. That approach preserves full deductibility of interest when the property is rented out and avoids triggering a refinance or variation that could reset the deductible portion of the loan.

Split loans, where part of your borrowing is fixed and part is variable, are commonly used to balance rate certainty with offset access. Only the variable portion can have an offset account. If you have surplus cash flow and want to reduce interest, the offset delivers more flexibility than making extra repayments into a fixed loan, which may incur break costs if you need to access that equity before the fixed term ends.

The Debt-to-Income Limit and What It Means for Perth Buyers

From 1 February 2026, each authorised deposit-taking institution can lend up to 20 per cent of new owner-occupier loans and 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. The limit applies to new lending only and does not affect existing borrowers.

For a household earning $120,000 combined, a DTI ratio of six means total borrowing of $720,000. If you're borrowing at or above that threshold, your application will be counted in your lender's quarterly allocation. Some lenders have tightened serviceability settings to stay within the 20 per cent cap without turning away high-DTI applicants entirely. Others have prioritised lower-DTI applications to preserve capacity for later in the quarter.

Bridging loans for owner-occupiers and loans for new builds are excluded from the DTI limit. If you're buying in a new development or building from the ground up, the DTI cap does not apply. That exclusion is designed to support housing supply, and it gives buyers in those categories more room to borrow relative to income than those purchasing established homes.

How Foreign Investment Rules Changed Lending in Perth

Foreign persons are banned from purchasing established dwellings from 1 April 2025 to 30 June 2029. The ban was extended in the 2026-27 Budget and now runs for more than four years. Temporary residents can still apply for approval to purchase new dwellings or vacant land, and New Zealand citizens remain exempt.

For Perth sellers, the removal of foreign buyers from the established market has reduced competition in some suburbs where offshore interest was previously strong. Lenders assess the resale market when valuing security, and a smaller buyer pool can affect valuation in areas that historically attracted high levels of foreign investment. That may not affect your ability to borrow, but it can affect how much a lender is willing to lend against a particular property if they believe the resale market has narrowed.

Developers and builders of new stock have seen increased interest from temporary residents and foreign buyers who can no longer access established homes. If you're buying off the plan in a high-density precinct, the composition of buyers in your building may now skew more heavily toward those eligible under the new build exemption.

Call one of our team or book an appointment at a time that works for you. We'll walk through your tax position, your borrowing capacity under the current DTI and serviceability rules, and which scheme or loan structure gives you the most certainty from application through to settlement.

Frequently Asked Questions