How Do the Negative Gearing Changes Affect My Borrowing Capacity?
The tax change starts on 1 July 2027. The lending change happened in May 2026. If your borrowing capacity moved this year and you could not work out why, that gap is the answer.
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The short answer
The tax change does not start until 1 July 2027. The lending change already happened. Negative gearing for residential property is limited to new residential dwellings and to properties acquired before 7:30pm AEST on 12 May 2026, under legislation that received Royal Assent on 26 June 2026 but applies from 1 July 2027. Lenders did not wait: from mid-May 2026 they began removing the negative gearing add-back from serviceability calculations, and published reporting put the effect on investor borrowing capacity at roughly 10 to 20 per cent. So for anyone buying established investment property today, the tax consequence is more than a year away while the borrowing consequence arrived within weeks of Budget night.
The short answer
Most of the coverage of the 2026 negative gearing reform has been about tax. That is understandable, because tax is what changed. But for anyone actually trying to buy an investment property this year, the tax change is not the part that has bitten yet.
What has bitten is serviceability. Lenders rewrote their investor calculators within weeks of the Budget, and the effect on what people can borrow was immediate. Investors who had a number in mind from earlier in the year have been finding that the number moved, and the reason has nothing to do with rates.
Two dates, and why the gap matters
Almost every misunderstanding about this reform comes from collapsing two different dates into one. They do different jobs.
| Date | What it does |
|---|---|
| 7:30pm AEST, 12 May 2026 | Budget night. Decides which properties are affected. Anything held at that moment, including under a contract entered into before it and not yet settled, is grandfathered. |
| 1 July 2027 | Decides when the tax treatment changes. Until then, the existing rules continue to apply. |
| From mid-May 2026 | Not a legislative date at all. This is when lenders began changing serviceability policy, which is why borrowing capacity moved first. |
So a person buying an established investment property this month is not affected by the tax change yet, and will not be until the 2027-28 income year. They are affected by the lending change right now. Working from a borrowing figure calculated before mid-May is the most common way people are getting caught.
What the law actually does
This is settled law rather than a proposal, which is worth stating because a good deal of published material still describes it as proposed. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed both Houses on 25 June 2026 and received Royal Assent on 26 June 2026.
From 1 July 2027, negative gearing for residential property is limited to:
- New residential dwellings. These keep the existing treatment.
- Properties acquired before 7:30pm AEST on 12 May 2026. Grandfathered, with no limit on the number of properties held that way, and for as long as you continue to hold them.
Further exclusions were announced for certain build to rent developments and for properties involved in government housing programs. The ATO’s guidance on the reform states that properties held at announcement are exempt from the negative gearing changes, and that the capital gains changes apply only to gains accruing after 1 July 2027.
What is affected, then, is a narrower category than the headlines suggested: established residential investment property, bought after Budget night, that is not a new build and does not fall within one of the carve-outs.
The deduction is quarantined, not abolished
This distinction is routinely lost, and it changes the picture materially.
From 1 July 2027, a rental loss on an affected property can no longer be offset against salary or other personal income. That is the change. What the loss can still do is:
- Offset residential rental income, including from other properties.
- Offset capital gains on residential property.
- Carry forward indefinitely where it cannot be used in the year it arises.
So the deduction is not destroyed. It is confined to a narrower pool of income and, in many cases, deferred. For an investor holding several properties, or one who eventually sells at a gain, the practical effect is different from simply losing the benefit. For an investor with a single property and no other rental income, the benefit may sit unused for a long time.
Whether that matters to you, and by how much, is a question for your accountant working from your actual position. It is not something a broker should be estimating for you.
Why capacity fell before the law starts
Here is the mechanism, because once you see it the timing makes sense.
When an investment property runs at a loss, lenders have historically calculated that annual loss, applied the borrower’s marginal tax rate, and treated the resulting tax refund as additional income in the serviceability assessment. It is known as the negative gearing add-back. Its effect was to increase borrowing capacity on the strength of a refund that had not yet been received, and in some cases the uplift was substantial.
Once the refund stops being available for post-Budget purchases of established stock, that add-back can no longer be justified. A lender that kept it would be advancing credit on the assumption of a tax benefit its borrowers will not receive, and carrying the regulatory risk of that assumption itself. So lenders removed it, and they removed it quickly.
The published sequence is instructive. One major lender moved first in mid-May 2026, within a week of the Budget, updating its calculator to strip most negative gearing add-backs for properties falling outside the new rules. Others followed through late May and into June, with the last of the larger institutions in place by mid-June. Reported estimates of the effect on investor borrowing capacity have generally sat around 10 to 20 per cent, with individual cases reported higher.
Two things follow. Any borrowing figure you were given before mid-May 2026 for an established investment purchase should be treated as out of date. And the reason your capacity moved is not that rates changed or that your position deteriorated; the calculation itself changed underneath you.
Worth noting alongside this: APRA’s serviceability buffer is unchanged. It confirmed on 28 May 2026 that the buffer remains at 3 percentage points and that high debt-to-income limits remain in place. The change to your capacity came from the add-back, not from the buffer.
Why lender choice matters more than it did
This is the part with practical value, and it is the reason the reform has made broking work harder rather than easier.
Lenders did not move in unison. They changed policy on different dates through May and June, applied different transition rules to applications already in the pipeline, and set different points at which an existing approval would be reassessed. Reporting through mid-2026 also indicated that some non-bank lenders were producing meaningfully higher borrowing capacity under the new settings than banks, in some cases despite a higher headline rate.
The consequence is that two applications with the same income, the same expenses and the same property can produce materially different answers depending on where they are submitted. That has always been true to a degree. It is more true now, and the spread is wider than it was.
None of that is a promise about any particular lender. Individual policy varies, changes without notice, and is applied case by case on the merits of the file. What it does mean is that the cost of going straight to your own bank without comparison has risen, because the difference between the most and least accommodating assessment of the same file is larger than it used to be.
If you have an application or pre-approval in flight
This is the group most at risk of an unpleasant surprise, and there are three things worth checking today rather than at settlement.
- Your contract date against 12 May 2026. A contract executed before 7:30pm AEST that day generally remains eligible for negative gearing in serviceability. After it, generally not, unless the property is a new build. This is the first thing a lender checks and it should be the first thing you check.
- Whether your approval is conditional or unconditional. Broadly, unconditionally approved applications were generally not reassessed retrospectively, while conditional approvals were commonly reassessed at the point of unconditional approval under the policy applying then. A conditional approval that depended on the add-back may not progress.
- Whether anything about the file has changed. Several lenders stated that an application resubmitted with material changes, such as a different loan amount, repayment type or security, would be assessed under the updated policy regardless of when it was lodged.
If you are holding a pre-approval issued before mid-May on an established investment purchase, the safe assumption is that it needs confirming rather than relying on. Finding out now is considerably better than finding out with a settlement date approaching.
The capital gains change in the same Act
Worth flagging because it travelled in the same legislation and receives far less attention, despite reaching well beyond property.
From 1 July 2027, the 50 per cent capital gains tax discount for individuals, trusts and partnerships is replaced by cost base indexation together with a 30 per cent minimum tax rate on capital gains. Eligible new residential dwellings and affordable housing may retain access to the discount.
There is also a transitional rule worth knowing about. An asset held on 30 June 2027 is treated as disposed of and reacquired just before 1 July 2027, so growth up to that date keeps its existing treatment and growth after it falls under the new rules. No tax is payable at that moment; the effect is to split the gain into a pre-reform and post-reform portion.
We raise it here only so it is on your radar, because an investor weighing a purchase now is making a decision that spans both regimes. How it applies to you is squarely a question for your accountant or registered tax agent, and the detail of this measure is more involved than a finance page should attempt.
Read Intellect Finance’s real Google reviews
Knowing which lenders moved when, and what each will do with a file that was priced under the old assumptions, is most of the value in this market right now. Here are Intellect Finance’s actual Google reviews, pulled live from our Google Business Profile, so you can see how clients describe the experience. They are real and unedited.
These reviews reflect other borrowers’ experiences. They are not a promise of any particular outcome for your finance, which will always depend on your own circumstances and lender assessment.
How Intellect Finance can help
The useful work right now is knowing which lenders changed what, and when. We track serviceability policy across a panel of more than 100 lenders, so we can tell you where your file sits under the new settings rather than the old ones, and whether a pre-approval issued earlier this year still stands. Investment lending is led by Moufid, who works across Western Sydney investor files daily. What we will not do is tell you whether to buy, or model your tax position; that belongs with your accountant, and on this reform it matters more than usual. We will tell you plainly when the numbers do not support the purchase. Intellect Finance Pty Ltd holds Australian Credit Licence 390611, is a member of the MFAA and AFCA, and has operated from Penrith since 2005. We do not charge you a fee for arranging your loan. For more see our investment loans, mortgage pre-approval and refinancing pages.
Frequently Asked
Negative gearing reform FAQs
The questions investors are asking most since the 2026 Budget.
Have the negative gearing changes started yet?
The tax change has not started, but the lending change already has. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, and its negative gearing provisions apply from 1 July 2027. Lenders, however, began rewriting their serviceability calculators from mid-May 2026, within days of the Budget. So the tax consequence is more than a year away while the effect on what you can borrow arrived almost immediately. That gap is the single most misunderstood part of this reform.
Which properties are affected?
Established residential investment properties acquired after 7:30pm AEST on 12 May 2026. Properties held at that moment, including those under a contract entered into before it but not yet settled, are grandfathered and keep the existing treatment for as long as you hold them. New residential dwellings are also excluded from the change, as are certain build to rent developments and properties in government housing programs. The contract date is what matters, and it is the first thing a lender will check.
Does this mean I lose the deduction entirely?
No, and this is widely overstated. The losses are quarantined rather than abolished. From 1 July 2027, rental losses on an affected property can no longer be offset against salary or other personal income, but they can still be offset against residential rental income and against capital gains on residential property, and anything unused carries forward indefinitely. The deduction is not lost. What changes is what it can be applied against, and therefore when you get the benefit.
Why did my borrowing capacity fall before the law even starts?
Because lenders were adding the expected tax refund to your income. Where an investment property ran at a loss, lenders calculated that loss, applied your marginal tax rate and treated the resulting refund as additional income in the serviceability assessment. That add-back inflated borrowing capacity before a single tax return was lodged. Once the refund stops being available for post-Budget purchases of established stock, the add-back cannot be justified, so lenders removed it. Published reporting has put the effect at roughly 10 to 20 per cent of borrowing capacity, and higher in some cases.
Do all lenders assess this the same way?
No, and the differences are material. Lenders moved at different times through May and June 2026, applied different transition rules to applications already in the pipeline, and set different cut-off points for when an existing approval would be reassessed. Some non-bank lenders have been reported as offering meaningfully higher capacity under the new settings than banks, even where the headline rate is higher. Two applications with identical income and expenses can produce materially different answers depending on where they are sent. That is a matter of individual lender policy, which varies and changes, and it is assessed case by case.
I have a pre-approval from before the Budget. Is it still valid?
It depends on the lender and on what happens to the file next. Transition rules differed considerably. Broadly, unconditionally approved applications were generally not reassessed retrospectively, while conditional approvals were commonly reassessed at the point of unconditional approval under whatever policy applied then. Several lenders also stated that any application resubmitted with material changes, such as a different loan amount, repayment type or security, would be assessed under the updated policy regardless of timing. If you are holding a pre-approval on an established investment purchase, confirm its status rather than assuming it survived.
What happened to the capital gains tax discount?
It was changed in the same Act. From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships is replaced by cost base indexation together with a 30 per cent minimum tax rate on capital gains. Eligible new residential dwellings and affordable housing may retain access to the discount. There is also a transitional rule under which an asset held on 30 June 2027 is treated as disposed of and reacquired just before 1 July 2027, so growth up to that date keeps its existing treatment and growth after it falls under the new rules. This is a tax matter for your accountant, and it is a significant one.
Does this make investing in property a bad idea now?
That is not a question a credit assistance provider can answer for you, and anyone who answers it confidently in either direction is overreaching. What can be said factually is that the reform reduces the value of tax losses on established stock bought after the cut-off, leaves new builds and grandfathered holdings largely as they were, and has already changed what lenders will advance. Whether a particular investment suits you depends on your objectives, your tax position and your risk tolerance, which are questions for your accountant and, where relevant, a licensed financial adviser.
The bottom line
Two dates run this reform and collapsing them is where the confusion starts. Budget night, 12 May 2026, decides which properties are affected. 1 July 2027 decides when the tax treatment changes. Everything you held at Budget night is grandfathered, new builds are excluded, and the losses on affected properties are quarantined rather than abolished.
The part that has already happened is the lending. Lenders removed the negative gearing add-back from serviceability from mid-May 2026, and reported estimates put the effect on investor borrowing capacity at roughly 10 to 20 per cent. They did not all move on the same date or apply the same transition rules, and the gap between the most and least accommodating assessment of an identical file is wider than it was. If you are working from a number calculated earlier this year, get it redone. If you are holding a pre-approval on an established purchase, confirm it still stands. And take the tax question to your accountant, because this reform has more moving parts than any summary can carry.
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Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, legal, or tax advice. It does not take your personal or financial circumstances into account. Before acting on any information here, you should consider whether it is appropriate to your objectives, financial situation, and needs.
General information about a tax reform, not tax advice. This article summarises publicly available information about the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and about publicly reported changes to lender serviceability policy, current at the time of writing. It is not tax advice, not a statement of how the law applies to your circumstances, and not a recommendation to buy, sell or hold any property. The legislation contains detail, exclusions and transitional rules this page does not attempt to cover.
Lender policy varies, changes, and is not promised here. The descriptions of serviceability changes reflect publicly reported policy movements across the market and general market commentary on their effect. They are not a statement of any particular lender’s current policy, not a quote, and not an offer of finance. No lender is named. Estimates of the effect on borrowing capacity are drawn from published industry reporting and will not reflect any individual file. Approval is never guaranteed and every application is assessed on its own merits.
Tax and financial advice sit outside our lane. Whether the negative gearing or capital gains tax changes apply to you, how quarantined losses would be treated in your circumstances, and the effect of the 1 July 2027 transitional rules are questions for your accountant or registered tax agent. Whether a property investment suits your objectives is a question for a licensed financial adviser. Contracts and title belong with your solicitor or conveyancer. Intellect Finance provides credit assistance only and does not provide tax or financial product advice.
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Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees, and terms apply.
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