Suppose you buy a $600,000 investment property in Adelaide. You borrow $480,000 at 6.2% interest, costing you around $29,760 per year in interest alone. Add council rates, insurance, property management, maintenance, and depreciation, and your total costs might be $40,000 per year. If the property earns $28,000 per year in rent, you have a $12,000 annual loss.
That $12,000 loss is deducted from your taxable income. If you earn $120,000 salary, your taxable income drops to $108,000. At a marginal tax rate of 37%, this saves you approximately $4,440 in tax. You are still out of pocket around $7,560 for the year - but the strategy assumes the property will grow in value over time to more than compensate.
The May 2026 Federal Budget announced significant changes to negative gearing and capital gains tax. From 1 July 2027, negative gearing on established (existing) investment properties will be restricted for new purchases. If you buy an established property after Budget night (12 May 2026), you can still deduct losses against rental income, but you will no longer be able to offset those losses against your other income such as wages or salary.
Negative gearing on newly built properties is not affected. The government's intention is to redirect investment toward new housing supply. Investors who already own established properties are grandfathered, meaning their existing deductions are not changed.
The 50% CGT discount is also being reformed from 1 July 2027. It will be replaced with an inflation-based discount plus a minimum 30% tax on capital gains. This affects the sale-side economics of investment property and should be factored into any hold-or-sell decision.
These are substantial changes. If you are considering purchasing an investment property, the timing of your purchase relative to 1 July 2027 matters. Lendology recommends speaking with your accountant about how these changes affect your individual position, and we can help structure your lending accordingly.
How you structure your investment loan matters significantly for tax outcomes. Lendology works with investors to ensure their loan structure maximises allowable deductions while maintaining flexibility. This includes decisions about interest-only vs principal and interest, offset account placement, and keeping investment and personal borrowing separate.
The ATO is strict about mixing personal and investment borrowing. Your Lendology broker will ensure your loan is structured correctly from day one, and recommend you speak with a qualified accountant about the tax implications specific to your situation.
Jason and Steve are Adelaide mortgage brokers who give honest advice at no cost to you. No obligation.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.