Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
What Changed on Budget Night, 12 May 2026
The Albanese Government announced the abolition of negative gearing for established (existing) residential investment properties purchased after 7:30pm AEST on 12 May 2026. From 1 July 2027, rental losses on these properties can no longer be offset against salary, wage, or business income. Instead, losses are quarantined and can only be carried forward against future rental income or capital gains from that property.
New residential construction is fully exempt. Both negative gearing deductions and the 50% CGT discount are preserved for new builds, regardless of purchase date. This is a deliberate policy lever to encourage housing supply.
The borrowing power impact is the part most investors are not thinking about yet. Lenders currently factor in the tax benefit of negative gearing when assessing how much you can borrow. Remove that benefit for established properties and your maximum loan amount drops, even if your income has not changed. I am already seeing lenders update their calculators. If you are planning to buy an investment property in the next 12 months, get a borrowing power assessment now so you know exactly where you stand.
How Negative Gearing Affects Borrowing Power
When a lender assesses your serviceability for an investment loan, they calculate whether you can afford the repayments. For negatively geared properties, the annual rental loss reduces your disposable income, but the tax deduction partially offsets that loss. Lenders factor this tax benefit into their servicing calculations.
With the tax benefit removed for established properties bought after the Budget cutoff, the full rental loss hits your bottom line. The lender sees a higher net cost of holding the property, which means they will approve a smaller loan.
Worked Example: Before and After the Changes
Consider an investor earning $150,000 per year, purchasing a $1 million established apartment in Sydney's Inner West.
Before the changes (full negative gearing)
- Loan: $800,000 at 6.49% interest-only
- Annual interest: $51,920
- Running costs: $8,500 (rates, insurance, management, maintenance)
- Annual rent: $36,400 ($700/week)
- Net rental loss: $24,020
- Tax saving at 37% + 2% Medicare levy: $9,368
- After-tax annual cost: $14,652 ($282/week)
- Lender-assessed cost: Factors in the $9,368 tax benefit
After the changes (loss quarantined)
- Same property, same loan, same costs
- Tax saving against salary: $0 (loss quarantined)
- After-tax annual cost: $24,020 ($462/week)
- Lender-assessed cost: No tax offset, full loss impacts servicing
- Estimated borrowing reduction: $100,000 to $160,000
That is the difference between being approved for $800,000 and being approved for $640,000 to $700,000, same income, same expenses, just a change in how the tax benefit is assessed.
The Key Dates You Need to Know
- 12 May 2026, 7:30pm AEST: Budget night cutoff. Properties purchased or under binding contract before this time are fully grandfathered.
- 1 July 2027: New rules take effect. Rental losses on post-Budget established purchases are quarantined from this date.
- Senate passage target: Labor is aiming to pass the legislation by early July 2026. As of today, the bill is still before the Senate.
What Is Grandfathered and What Is Not
- Grandfathered (existing rules apply indefinitely): Any investment property you already own or had under binding contract before 7:30pm on 12 May 2026.
- New builds (full benefits retained): Any new residential construction purchased at any time, before or after the Budget. Full negative gearing and 50% CGT discount.
- Affected: Established residential investment properties purchased after the cutoff. Losses quarantined from 1 July 2027.
Five Strategies to Protect Your Borrowing Power
1. Pivot to new builds
New construction retains full negative gearing and the full CGT discount. House-and-land packages, off-the-plan apartments, and new townhouses all qualify. Many investors are already redirecting their search to new stock. The government designed this carve-out specifically to channel investment toward supply.
2. Consider positively geared properties
Properties where rent exceeds costs are not affected by the loss quarantining rules, because there is no loss to quarantine. Higher-yield suburbs in Western Sydney, regional NSW, and select unit markets can deliver 4%+ gross yields that approach positive gearing territory, particularly with a 20% deposit reducing the loan amount.
3. Restructure your existing portfolio
If you own existing investment properties with equity, releasing that equity to fund a new purchase can reduce the loan-to-value ratio on the new property, lower interest costs, and improve servicing. This is particularly effective when combined with a new build strategy.
4. Use the right lender
Not all lenders have responded to the changes in the same way. Some have already updated their servicing calculators to remove the negative gearing benefit for post-Budget established purchases. Others are still finalising their approach. Working with a broker who compares 50+ lenders means we can identify which lenders currently offer the strongest borrowing capacity for your situation.
5. Act on pre-approvals before lender policy tightens
If you are considering an investment property purchase, getting a pre-approval now locks in current servicing assessments. As more lenders update their calculators through mid-2026, borrowing capacity for established investment properties will tighten further.
What About the CGT Discount?
The Budget also proposed reducing the CGT discount for established investment properties purchased after the cutoff. The exact reduction is still subject to Senate negotiation as of June 2026. New builds retain the full 50% CGT discount. Properties purchased before the cutoff are grandfathered at the full 50%.
Do Not Panic, But Do Plan
If you already own investment properties, nothing changes for you. Your existing portfolio is grandfathered. If you are planning to buy, the landscape has shifted, but opportunities remain. New builds offer the same tax benefits as before. The right lender and the right structure can preserve more of your borrowing capacity than you might expect.
The worst thing you can do is nothing. Get a clear picture of your borrowing power under the new rules, understand your options, and make an informed decision.
