Negative Gearing & Investment Loans: Avoid These Mistakes

Negative gearing lets you offset rental losses against your salary and other income, which has made it one of the most widely used strategies for building wealth through property in Australia.

From the 2027-28 income year, established properties you buy now will no longer qualify for that treatment. If you purchased before 7:30pm on 12 May 2026, or if you're buying a qualifying new build, you can still deduct losses against all your income. If you're buying an established property after that date, your losses can only offset income from other residential properties, including future capital gains. The timing and the type of property you choose now determine which set of rules will apply for the life of your ownership.

What Changed on 12 May 2026

Properties you owned or had under contract at 7:30pm AEST on 12 May 2026 are grandfathered under the old rules. Those properties continue to allow full negative gearing for as long as you hold them. Properties you purchase after that date are subject to the new treatment unless they meet the definition of an eligible new build. An eligible new build includes dwellings built on previously vacant land and dwellings where a knock-down rebuild increases the total number of dwellings on the site. A straight replacement that doesn't add a dwelling, or a substantial renovation, won't qualify. A new build that's been occupied for more than 12 months before you purchase it also loses the exemption.

In Ferntree Gully, where house and unit turnover is strong and the market is dominated by established stock, most listings you see today will fall under the new negative gearing treatment. According to CoreLogic data from September 2026, the suburb recorded 343 house sales and 153 unit sales over the 12 months prior, with the median house at $935,000 and the median unit at $708,000. The majority of those transactions involved established dwellings.

How the New Negative Gearing Rules Work

From 1 July 2027, if your rental property makes a loss, you can deduct that loss only against income from residential property. That includes rental income from other investment properties you own and capital gains from any residential property you sell. If your total deductions exceed your total residential property income in a given year, the excess loss carries forward to future years and can be used when you do have residential property income to offset it against.

Consider an investor who buys an established townhouse in Ferntree Gully after 12 May 2026 at the current median. Rental income in the suburb sits at around $600 per week for a unit, based on Domain active listings at September 2026, which gives an annual gross rent of $31,200. Interest on an 80 per cent loan at current variable rates, combined with council rates, insurance, property management, and a realistic repair allowance, could easily produce total annual expenses around $55,000. The shortfall of roughly $23,800 cannot be claimed against the investor's wage income. It can only be claimed against other residential property income or banked as a carry-forward loss.

Why New Builds Still Qualify for Full Negative Gearing

The exemption for new builds is intended to encourage housing supply. If you purchase a dwelling that's been constructed on land that was previously vacant, or that replaced an existing dwelling and added to the total number of dwellings on the site, you retain access to full negative gearing regardless of when you buy. You can offset rental losses against your wage income, the same way investors could before the changes.

That treatment lasts for the life of your ownership, but only while the property meets the definition. If you sell it to another investor more than 12 months after it was first occupied, the next buyer loses the exemption and falls back under the new restricted rules. In practice, this means new builds carry a premium for first and early purchasers, and that premium diminishes over time.

Ferntree Gully doesn't have large-scale apartment development like inner suburbs, but small-scale townhouse and dual-occupancy projects do appear, particularly on larger blocks closer to the Knox border. If you're considering one of those projects, confirm with your solicitor and accountant that it meets the ATO definition before you exchange contracts. The distinction between a subdivision that adds a dwelling and a renovation that doesn't can be less obvious than it appears.

Capital Gains Tax Changes from 1 July 2027

From 1 July 2027, the 50 per cent CGT discount is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains. You index your purchase price by CPI and pay tax only on the gain above inflation. The minimum rate applies only if your marginal rate on that gain would otherwise be lower than 30 per cent. For properties you owned before 1 July 2027 and sell after that date, gains are split. The portion that accrued before 1 July 2027 is taxed under the old 50 per cent discount rules, and the portion after that date is taxed under the new indexed system. You can obtain a market valuation as at 1 July 2027 or use the ATO apportionment formula.

For eligible new builds, you get to choose. At the time you sell, you can apply either the old 50 per cent discount or the new indexed treatment, whichever gives you the lower tax outcome. That flexibility doesn't exist for established properties purchased after 12 May 2026.

An investor buying an established property in Ferntree Gully today for $935,000 and holding for 10 years will have two CGT calculations to manage at sale: one portion under the discount method for gains to 30 June 2027, and another under indexation for gains from 1 July 2027 onward. If you're planning to hold long term and expect sustained growth, the indexed method may produce a lower real tax bill than the old discount, particularly in high-inflation environments. But you lose the ability to choose.

Interest-Only Loans and Investor Borrowing Settings

Most investors use interest-only repayment structures for the first few years of ownership, which maximises deductible interest and preserves capital for further purchases. Lenders across Australia still offer interest-only investment loan options, though approval settings have tightened. Under APRA's prudential framework, your lender must assess your ability to service the loan at a rate at least 3 percentage points above the actual product rate, and from February 2026, no more than 20 per cent of new investor lending at any bank can go to borrowers with a debt-to-income ratio of six times or more.

If you earn $120,000 and already hold $500,000 in investment debt, a new borrowing that takes your total debt above $720,000 will fall into that restricted pool. It doesn't mean you can't borrow, but it does mean your application sits within a capped allocation at each lender, and approval depends on how much of that allocation has already been used in the quarter. In our experience, investors with strong rental income, genuine savings, and a clear exit strategy still get approved, but the pathway is narrower than it was two years ago.

An interest-only period on an investment loan is typically five years. After that, the loan reverts to principal and interest unless you apply for an extension. Some lenders allow one extension, others allow multiple extensions on a case-by-case basis depending on your equity position and serviceability at the time. If the loan-to-value ratio is above 80 per cent and the interest-only term exceeds five years or isn't specified, the loan is classified as non-standard under APS 112, which increases the bank's capital cost and may affect your rate.

Claimable Expenses Beyond Interest

Interest is the largest deduction most investors claim, but it isn't the only one. Council rates, water charges, insurance, property management fees, repairs, and depreciation on the building and fittings are all claimable in the year they're incurred, provided the property is rented or genuinely available for rent. Strata levies apply if you own a unit. Loan establishment fees and ongoing account-keeping fees are deductible. Stamp duty and conveyancing costs aren't deductible in the year of purchase but are added to your cost base and reduce your capital gain when you sell.

If you're buying a unit in Ferntree Gully at the current median of $708,000, Victorian stamp duty sits around $38,000, and conveyancing might add another $2,000 to $2,500. Lenders Mortgage Insurance applies if your deposit is below 20 per cent. On a 10 per cent deposit, LMI could add another $15,000 to $20,000 depending on the lender. None of those upfront costs are deductible against your income, but they do form part of the total capital invested, which matters when you calculate your return and your CGT position years later.

Refinancing and Portfolio Growth Strategy

Once your first property has gained equity, you can access that equity to fund the deposit on a second property without selling the first. Lenders will typically allow you to borrow up to 80 per cent of the revalued property without triggering a new LMI charge. If the property has increased in value and your loan balance has reduced, that creates usable equity. The borrowed funds are used to acquire the next income-producing asset, so the interest on that drawdown remains deductible.

We regularly see clients start with a single established unit, build equity over three to five years, then use that equity to purchase a new build townhouse that qualifies for full negative gearing while still holding the original property under the grandfathered rules. The strategy lets you access both tax treatments within the one portfolio and smooth your cash flow across properties with different return profiles. Refinancing at the right point in the cycle, particularly when your circumstances have improved or rates have moved, can reset your borrowing capacity and open the next purchase.

When to Seek Advice Before You Exchange

The interaction between the new negative gearing rules, the CGT changes, and the APRA lending limits means the structure you choose today will shape your tax position and borrowing capacity for years. If you're considering a property in Ferntree Gully or nearby suburbs like Boronia, Wantirna, or Croydon, talk to a broker and an accountant before you make an offer. The accountant confirms the tax treatment and models your after-tax return. The broker confirms your borrowing capacity, structures the loan to preserve flexibility, and makes sure the interest-only term and offset arrangements suit your broader strategy.

Every lender applies APRA's settings differently. Some are more willing to lend into higher DTI ratios within their 20 per cent allocation, others tighten sooner. Some offer better pricing on new builds, others don't differentiate. Access to investment loan options from banks and lenders across Australia means you're not locked into a single approval pathway, and in a constrained lending environment, that access matters.

Call one of our team or book an appointment at a time that works for you. We'll walk through your numbers, confirm what you can borrow, and structure the loan so it supports the next property as well as this one.

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