Investment property financing in the Australian Capital Territory operates within a legislative framework that underwent material amendment during the 2026 financial year.
The deductibility of borrowing costs against assessable income remains a central feature of residential property investment in Australia. Under the Income Tax Assessment Act 1997 (Cth), interest on borrowings used to acquire or hold residential rental property is deductible to the extent the property is rented or held to produce assessable income. Interest on borrowings for private purposes is not deductible, regardless of the security provided. Other ongoing holding costs, including council rates, insurance, property management fees, repairs and depreciation, are deductible for the period the property is rented or genuinely available for rent.
How the Grandfathering Provisions Apply to Investment Property Acquired Before May 2026
Losses from residential investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, continue to be fully deductible against other income, including salary and wages, until the property is sold. This treatment is preserved by the grandfathering provisions of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
Consider an investor who settled on a Gungahlin apartment in April 2026 with an investment loan amount of $520,000 at a variable rate. The property generates rental income of $28,600 per annum and incurs interest costs of $31,200 per annum. Under the grandfathering provisions, the investor may deduct the full $2,600 annual loss against salary and wage income for each income year until the property is disposed of. The property's proximity to light rail infrastructure and the Australian Catholic University campus supports consistent occupancy, which is relevant to maintaining the property's status as genuinely available for rent.
Negative Gearing Restrictions From the 2027-28 Income Year
From the 2027-28 income year, losses related to established residential investment properties acquired after 7:30pm AEST on 12 May 2026 are deductible only against other income from residential properties, including capital gains on residential properties. Excess losses can be carried forward to offset residential property income in future years.
The changes apply to residential property held by individuals, partnerships, companies and most trusts. Widely held unit trusts, including most managed investment trusts, are carved out. Properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 may be negatively geared under the current rules until 30 June 2027 only. The operative provisions are in Schedule 2 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which amends the Income Tax Assessment Act 1997 (Cth) by inserting new sections 26-155 and 26-160.
Consider an investor who settles on an established townhouse in Belconnen in September 2027. The property incurs a loss of $4,800 in the 2027-28 income year. That loss cannot be deducted against the investor's employment income. The loss is carried forward and may be offset against rental income or capital gains from residential property in subsequent income years. If the investor also holds a grandfathered investment property in Kingston that generates a capital gain of $12,000 in the 2028-29 income year, the carried-forward loss of $4,800 may be offset against that gain.
Eligible New Build Exemptions and Supply Incentives
Losses from new builds acquired after 12 May 2026 can continue to be deducted against all income. Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases. Knock-down rebuilds that do not increase dwelling numbers, and substantial renovations, are not eligible. A new build occupied for more than 12 months before sale to a subsequent investor loses access to negative gearing for that subsequent purchaser.
This exemption is intended to direct capital toward housing supply. Investors considering new build apartments in developments such as those in the Molonglo Valley precinct, where construction activity is concentrated on previously vacant land, retain access to full negative gearing treatment. The exemption applies regardless of the size or location of the new dwelling, provided it meets the eligibility criteria.
Capital Gains Tax Treatment for Disposals After 1 July 2027
From 1 July 2027, the 50 per cent capital gains tax discount for individuals, trusts and partnerships on affected assets is replaced by cost base indexation using the Consumer Price Index and a 30 per cent minimum tax rate on real capital gains accruing from that date. Investors index the cost base of their assets in line with inflation and pay tax on above-inflation profits only.
For assets owned before 1 July 2027 and sold after that date, gains are taxed under the current rules for the portion accruing before 1 July 2027 and under the new rules for the portion accruing after that date. Taxpayers may either obtain a market valuation as at 1 July 2027 or apply an ATO-published apportionment formula. For investors in eligible new build residential properties, both the existing 50 per cent CGT discount and the new indexation and 30 per cent minimum tax arrangements are available as a choice at the time of disposal. The operative provisions are in Schedule 1 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
The 30 per cent minimum rate applies only to the post-1 July 2027 indexed portion of a gain and only where the taxpayer's effective rate on that portion is below 30 per cent. Recipients of certain government payments, including the Age Pension, Disability Support Pension, parental leave pay and JobSeeker, are exempt from the minimum rate in any financial year they receive such a payment.
Deduction Limitations for Mixed-Use and Vacant Property Periods
Interest and holding costs are deductible only for the period the property is rented or genuinely available for rent. Where a property is vacant and not advertised for rent, or where it is used for private purposes, deductions must be apportioned. The Australian Taxation Office applies scrutiny to claims for extended vacancy periods where no genuine marketing activity is evident.
Investors who occupy their investment property for personal use, including short stays or use by family members, must adjust their deduction claims accordingly. Where a property is advertised for rent but remains vacant due to local market conditions, the deduction is ordinarily preserved provided the property is priced within the prevailing rental range for comparable properties in that location. Investors holding property in areas with higher vacancy rates, such as certain precincts in outer Canberra, should retain evidence of rental advertising and property management correspondence to substantiate deduction claims.
Interaction Between Debt-to-Income Limits and Claimable Interest Deductions
The Australian Prudential Regulation Authority activated a debt-to-income lending limit on 27 November 2025, effective from 1 February 2026, applying to all authorised deposit-taking institutions. Each institution may lend, measured on a quarterly basis, up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. The limits apply to new lending only. Existing borrowers are not affected.
The DTI limit does not alter the quantum of interest that is deductible once a loan is drawn, but it may constrain the borrowing capacity of investors seeking to acquire additional properties. Investors with existing salary income of $140,000 per annum and total debt across investment loans and owner-occupied debt of $900,000 would sit at a DTI of 6.4 times. That investor would fall within the 20 per cent quota and may face additional serviceability scrutiny or a requirement to reduce the loan amount requested. The investor's capacity to claim interest deductions is not directly affected, but the loan amount from which those deductions arise may be constrained.
Compliance Obligations and Record-Keeping for Deduction Claims
Investors are required to maintain records that substantiate all deduction claims for a period of five years from the date of lodgement of the relevant income tax return. Records should include loan statements, rental income receipts, property management agreements, receipts for repairs and maintenance, council rate notices, insurance policies, and evidence of rental advertising during any vacancy period.
Where an investor undertakes repairs or capital improvements, it is necessary to distinguish between deductible repairs and non-deductible capital works. Repairs that restore an asset to its original condition without improving it are immediately deductible. Capital improvements, including extensions or structural alterations, are depreciated over time in accordance with the capital works provisions of the Income Tax Assessment Act 1997 (Cth). Investors should obtain written quotes and invoices that describe the nature of the work performed to support the classification adopted in their tax return.
Foreign Investment Restrictions and Their Impact on Investor Loan Demand
Under the Foreign Acquisitions and Takeovers Act 1975 (Cth), foreign persons, including temporary residents and foreign-owned companies, are generally banned from purchasing established dwellings in Australia from 1 April 2025 to 30 June 2029. Limited exceptions apply, including investments that significantly increase housing supply and purchases by foreign companies that employ workers under the Pacific Australia Labour Mobility scheme. Temporary residents can still apply for Foreign Investment Review Board approval to purchase new dwellings or vacant land.
The restriction reduces demand for established dwellings from foreign buyers and may place downward pressure on capital growth in certain precincts. Investors considering refinancing or portfolio growth strategies should be aware that the pool of potential purchasers for established residential property has been materially reduced for the duration of the restriction. Investors holding new build properties that remain eligible for foreign acquisition may experience comparatively stronger demand upon disposal.
OAUM Securities maintains access to investment loan products from lenders across Australia. The interaction between grandfathering provisions, new build exemptions, capital gains tax indexation, and debt-to-income limits requires case-by-case analysis. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I still claim negative gearing deductions on an investment property I purchased in 2026?
Yes. Losses from residential investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, continue to be fully deductible against other income until the property is sold. This treatment is preserved by the grandfathering provisions of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
What qualifies as an eligible new build for negative gearing purposes?
Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases. Knock-down rebuilds that do not increase dwelling numbers, and substantial renovations, are not eligible. A new build occupied for more than 12 months before sale to a subsequent investor loses access to negative gearing for that subsequent purchaser.
How does the capital gains tax treatment change from 1 July 2027?
From 1 July 2027, the 50 per cent CGT discount is replaced by cost base indexation using CPI and a 30 per cent minimum tax rate on real capital gains accruing from that date. For assets owned before 1 July 2027 and sold after that date, gains are taxed under the current rules for the portion accruing before 1 July 2027 and under the new rules for the portion accruing after that date.
Are interest deductions limited if my property is vacant?
Interest and holding costs are deductible only for the period the property is rented or genuinely available for rent. Where a property is advertised for rent but remains vacant due to local market conditions, the deduction is ordinarily preserved provided the property is priced within the prevailing rental range for comparable properties in that location.
How do debt-to-income limits affect my ability to claim tax deductions?
The debt-to-income limit does not alter the quantum of interest that is deductible once a loan is drawn, but it may constrain the borrowing capacity of investors seeking to acquire additional properties. Investors with a total debt-to-income ratio of six times or greater may face additional serviceability scrutiny or a requirement to reduce the loan amount requested.
