Top Tips to Structure Negative Gearing Before July 2027

Negative gearing lets you offset a rental loss against your other income.

From 1 July 2027, that changes for most residential properties acquired after 12 May 2026. If your rental expenses exceed your rental income, the shortfall can only be offset against other residential rental income or carried forward. It cannot be offset against your salary, business income, or dividends. Properties you already own, or have under contract before 7:30pm AEST on 12 May 2026, are grandfathered and continue under the current rules until you sell. Eligible new builds acquired after that date preserve full negative gearing.

The decision you are making now is whether to acquire an established property before the transition ends on 30 June 2027, defer until after the rules take effect and accept the quarantine, or structure your investment around an eligible new build. Each path changes how you finance the purchase, how much deposit you need, and how serviceability is assessed.

What Counts as Grandfathered Under the May 2026 Cutoff

You retain full negative gearing if you owned the property, or had a binding contract in place, at 7:30pm AEST on 12 May 2026. That includes properties that settled after that date, provided the contract was signed beforehand. If you acquired an established dwelling after that cutoff but before 1 July 2027, you can negatively gear it under the old rules until 30 June 2027 only. After that, any rental loss is quarantined to residential income.

Consider an investor who signed a contract on 10 May 2026 but did not settle until August 2026. The property remains fully negatively geared for as long as they hold it. An investor who signed on 15 May 2026 can offset the rental loss against salary until 30 June 2027, then the quarantine applies.

How the Quarantine Changes Borrowing Capacity

Lenders assess serviceability by adding rental income and subtracting expenses, then applying the serviceability buffer to the proposed loan. When a rental loss can be offset against salary, that loss reduces your taxable income and increases your after-tax position. When the loss is quarantined, you carry the full cash shortfall without the tax benefit, and most lenders adjust their assessment to reflect that.

In our experience, investors who relied on a modest negative position to make the repayments affordable now need either a larger deposit to reduce the loan amount, higher rent to cover more of the interest, or additional non-rental income to service the gap. The shift is most pronounced for buyers at a debt-to-income ratio near the 6 times cap, where even a small reduction in assessed income can push the application over the threshold.

Eligible New Builds and How the Definition Works

An eligible new residential dwelling preserves full negative gearing after 1 July 2027. That includes a home built on previously vacant land, or a development that increases the number of dwellings on the site. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. Substantial renovations do not qualify.

If a new build is occupied for more than 12 months before it is sold to a subsequent investor, that investor loses access to negative gearing and the loss is quarantined. The first owner retains the benefit, provided they acquired the property as an eligible new build.

As an example, a townhouse constructed on subdivided land and purchased off the plan in October 2026 qualifies. An investor who buys that townhouse in December 2028, one year after the first owner moved a tenant in, does not qualify and will have any rental loss quarantined.

Variable Versus Fixed Rate Under the New Framework

The choice between variable and fixed rate on an investment loan now carries an additional layer. If your property is subject to the quarantine, you are carrying the rental shortfall in cash without an immediate tax offset. A fixed rate locks in your repayment and protects against rate rises during the fixed term, which can be valuable when you cannot offset a larger loss against salary.

A variable rate gives you flexibility to make extra repayments into an offset or redraw, and to refinance without break costs if your circumstances or the regulatory settings change. For properties grandfathered under the old rules, the calculation is unchanged. For properties acquired after the cutoff, the cash flow certainty of a fixed rate may outweigh the flexibility of variable, particularly if you are holding the property through the transition period.

Interest-Only Repayments and Cash Flow Planning

Interest-only repayments reduce your monthly outgoing and can make an investment property serviceable when principal-and-interest repayments would not. Lenders typically offer interest-only terms of one to five years on investor loans, after which the loan reverts to principal and interest unless you negotiate an extension.

Under the quarantine rules, an interest-only period can reduce the cash shortfall you need to fund from other sources, but it does not change the fact that the loss cannot be offset against salary. If the rental income covers 80 per cent of the interest and you are paying interest only, you carry a 20 per cent shortfall. On a loan amount of 500,000 dollars at a variable rate around 6.5 per cent, that shortfall is in the order of 540 dollars per month.

The rental income you receive, the rate you negotiate, and the period you hold interest-only all affect whether the investment remains cash-flow neutral or requires you to top up repayments from savings or other income.

Capital Gains Tax Indexation and the 30 Per Cent Minimum Rate

From 1 July 2027, the 50 per cent capital gains tax discount is replaced with cost base indexation and a 30 per cent minimum tax rate on real gains for affected assets. Gains that accrued before 1 July 2027 on properties you already own continue under the current discount. Only gains accruing after that date are subject to the new rules.

For eligible new builds, you can elect between the 50 per cent discount and indexation with the 30 per cent minimum. The election is made when you dispose of the property. If you hold the property for a long period in a low-inflation environment, the discount may deliver a lower tax outcome. If inflation is higher, indexation may reduce the real gain and result in less tax.

The distinction matters when you are deciding whether to acquire an established property before the cutoff to preserve the discount on future gains, or to acquire an eligible new build and retain the election.

How Lenders Assess Rental Income on New Builds

Lenders apply a vacancy rate and other adjustments when calculating rental income for serviceability. For established properties in a stable area, the assessed rent is typically 80 per cent of the market rent, reflecting vacancy, maintenance, and management costs. For new builds, some lenders apply the same rate, while others accept a higher figure if the property is in an area with low vacancy and strong demand.

The distinction can affect how much you can borrow. A lender assessing rent at 80 per cent of 600 dollars per week will include 24,960 dollars per year in your income. A lender assessing the same rent at 85 per cent will include 26,520 dollars. The difference is modest, but it can be the margin that brings your debt-to-income ratio under the 6 times cap or allows you to borrow an additional amount without requiring a larger deposit.

Deposit Requirements and Lenders Mortgage Insurance

Most lenders require a 10 per cent deposit for an established investment property and a 10 per cent deposit for an eligible new build. If you are borrowing more than 80 per cent of the property value, you will pay Lenders Mortgage Insurance. LMI is a one-off cost, typically capitalised into the loan, that protects the lender if you default.

For properties subject to the quarantine, some lenders have tightened their maximum loan-to-value ratio or increased the deposit required, particularly where the rental income does not cover the interest and the borrower is carrying a cash shortfall. The change is not uniform across all lenders, and the assessment depends on your income, existing debt, and the rental yield of the property.

Claimable Expenses and How They Interact with the Quarantine

Interest, property management fees, council rates, strata levies, insurance, repairs, and depreciation are all claimable against rental income. Under the quarantine, these expenses still offset your rental income. If your rental income is 30,000 dollars and your expenses are 35,000 dollars, you have a 5,000 dollar loss. That loss can be offset against other residential rental income or carried forward. It cannot be offset against salary.

If you hold multiple investment properties, one producing a profit and one producing a loss, the loss can offset the profit within the same financial year. The quarantine applies to net residential rental losses, not to individual properties. This creates a planning opportunity for investors building a portfolio, where a negatively geared property acquired after the cutoff can be balanced by positively geared properties acquired before or after.

Contact one of our team or book an appointment at a time that works for you. We will walk through your borrowing position, the timing of your purchase, and the loan structure that aligns with the new framework.

Frequently Asked Questions