Borrowing power impact — side note for mortgage brokers
Cashflow timeline — old vs new regime
Sensitivity — your after-tax IRR (NEW regime) by growth × CPI
Each cell shows the after-tax IRR you'd actually achieve under the new regime in that growth/CPI combination. Italic sub-text shows how it differs from the OLD regime (Δ in IRR points). Other inputs held at current values. Highlighted cell ≈ your current scenario. Colour scale: red = poor return, white ≈ moderate (~5%), green = strong return.
Optimal exit year (new regime) & what you have to believe
State property tax breakdown — stamp duty + land tax (unchanged by the regime, shown for completeness)
Year-by-year detail
| Yr | Gross rent | Interest | Holding | Dep'n | Net P&L | Old: tax effect | Old: after-tax cash | New: tax effect | New: after-tax cash | New: loss pool |
|---|
Modelling assumptions
Growth & escalation
- Rent grows at CPI annually:
rent[y] = price × yield × (1+CPI)^(y−1) × (1−vacancy) - Holding costs and land tax grow at CPI
- Interest is flat (interest-only loan at fixed rate; no IO-to-P&I conversion modelled)
- Depreciation is a constant $/yr (no DDV step-down)
Tax
- Marginal tax rate stays constant over the hold (no bracket creep / income changes)
- 30% min tax applies as
max(marginal, 30%)— no individual carve-outs (Age Pension etc.) modelled - Quarantined losses are pooled across the investor's residential portfolio (per Treasury factsheet wording — confirmation pending exposure draft)
- All depreciation treated as Division 43 capital works (cost-base reducing); Div 40 plant & equipment ignored
- CPI is used as both inflation rate and ATO indexation rate (in reality these differ slightly)
Structural simplifications
- CPI and growth are constant year-on-year (no variability, no Monte Carlo)
- Vacancy applied as flat % every year (no lumpy multi-week vacancies)
- Sale at end of year N (not mid-year) — small effect on IRR
- No reinvestment of cash inflows during the hold (pure cashflow IRR)
Out of scope
- No PPOR conversion / 6-year rule
- SMSF buyer modelled at state-tax level only (stamp duty, land tax) — federal income tax / CGT still uses personal-investor marginal rate. Add Div 296 / 33⅓% SMSF CGT discount layer is a planned extension
- Trusts and companies not modelled
- No grandfathering / transitional treatment for 12 May 2026 → 30 Jun 2027 purchases
- All amounts are nominal future dollars (not inflation-adjusted to today's terms)
- Stamp duty & land tax verified against primary state revenue sources May 2026; foreign surcharges + SMSF trust treatment per jurisdiction; VIC OTP concession assumes ~65% construction share of price for apartments
The model is calibrated to the Treasury Negative Gearing & CGT Reform factsheet (Budget 2026–27). Where the factsheet leaves a mechanic ambiguous (loss pool granularity, indexation interaction with min tax, etc.), we've adopted the most natural reading — these may be revised when the exposure draft is released.
2 · The regime change simplified
① Quarantining ≠ abolition
Operating losses on post-budget established residential can't offset salary in-year, but they're banked and released against future residential rental income or capital gain at sale. The deduction survives — only the timing changes. Most cases, full release happens at sale.
② The permanent denial trap
If a property sells at a capital loss, or the gain is smaller than the accumulated loss pool, the residual losses die with the property. No carry-back, no transfer to other income.
The trap bites when nominal growth runs below ~4% pa over the hold (well under long-run Australian residential growth of 6–7%). High-LVR investors in flat markets are most exposed — see the "High LVR, low growth" scenario.
③ Indexation can outperform the 50% discount
Counter-intuitive but true. The 50% discount taxes half of the nominal gain. Indexation taxes the real (inflation-adjusted) gain — at high CPI, that's much smaller.
At 4.5% CPI and 5.5% growth (close to historical Australian norms), the new regime can beat the old by tens of thousands. Don't reflexively claim "old was always better".
④ Three-tier transition for established residential
Pre-12 May 2026 (incl. unconditional contracts): fully grandfathered — old rules apply indefinitely.
12 May 2026 → 30 Jun 2027: negative gearing during this window only; quarantining kicks in 1 July 2027.
From 1 July 2027: full new regime from purchase.
3 · Buyer-type quick reference
Who's affected · who isn't
| Buyer type | What changes | Headline call |
|---|---|---|
| Owner-occupier (main residence) | Nothing | Main residence CGT exemption is untouched. Most tax-advantaged buyer in Australia. |
| Personal-name investor — established residential | Most affected | Quarantining + indexation + 30% min tax. New "permanent denial" trap to flag for high-LVR clients. |
| Personal-name investor — new build / OFP | Improved choice | Investor chooses better of 50% discount or indexation at sale. Strict superset of old rules. Reframe pitches toward new builds. |
| SMSF / super fund | Nothing | Explicitly excluded from both halves of the reform. 15% income tax + ⅓ CGT discount unchanged. Relatively more attractive vs personal-name now. |
| Existing investor (pre-12 May 2026) | Nothing — grandfathered | Old rules apply indefinitely. Don't recommend selling to "lock in" — it triggers immediate CGT for no benefit. |
4 · Common misconceptions
"Negative gearing is abolished"
❌ Myth. ✅ Reality: Restricted/quarantined for established residential only. Still fully available for new builds, build-to-rent and other non-property assets like shares.
"Property is no longer a good investment"
❌ Myth. ✅ Reality: Structural advantages are intact: leverage on a hard asset, inflation hedge via fixed IO loan, rent growth. Even the regime's worst-case scenarios still produce strong absolute returns. Marginal cost adjustment, not a fundamental change.
"You should sell your existing property to lock in old rules"
❌ Myth. ✅ Reality: Existing properties are grandfathered indefinitely. Selling triggers immediate CGT for zero benefit. Holding preserves both old negative gearing AND access to either CGT method on eventual disposal.
"Indexation is always worse than the 50% discount"
❌ Myth. ✅ Reality: Depends on the CPI:growth ratio. At high CPI vs moderate growth, indexation is better — load the "High inflation, historical growth" scenario to see it.
Treasury projections worth knowing
+75,000 additional owner-occupiers projected over a decade as investor demand softens.
~2% slower house price growth (small, temporary, more than offset by Budget supply measures).
<$2/wk projected rent impact (counters "rents will explode" pushback).
Subject to legislation · awaiting exposure draft
The new regime is law-in-principle but mechanics are still being finalised in the exposure draft. Three things to watch: (1) loss pool granularity (per-property or pooled — Treasury implies pooled), (2) order of operations between losses and indexation, (3) "new build" definition edge cases.
None of these are likely to materially change the broker conversation: "the law is settled in direction; technical detail is still landing."
1 · The overview
The 30-second summary
From 1 July 2027, operating losses on established investment properties bought after 12 May 2026 can no longer reduce salary income in the year incurred — they're banked and released against future rental income or capital gain. New builds, SMSFs, and existing investors are exempt. The 50% CGT discount is replaced by inflation indexation + a 30% minimum tax floor.
For most clients, the impact is 5–15% of total return over a typical hold — material but not catastrophic. Property still works.
This calculator doesn't replace professional advice
It uses simplified assumptions (constant CPI/growth, IO loan throughout, all dep as Div 43, etc.). For tax structuring, refer to a registered tax agent. For investment strategy and asset allocation, refer to a qualified financial advisor. Use this tool to inform the conversation, not replace professional advice.
The right property now more important
The new regime makes the property choice itself more consequential as the wrong stock in a flat suburb is now penalised harder by the loss-pool trap, while a well-selected high-growth asset shrugs off the regime change. Independent property selection expertise has become more valuable, not less.
Helpful definitions
Net pocket = total profit your client walks away with after all tax, sale costs, and hold-period cashflow. The number that matters most.
After-tax IRR = annualised return on equity invested. Comparable to shares, super, or any other investment of equal dollar amount.
Δ NEW vs OLD = the regime change impact. Always frame this against the headline net pocket, not in isolation. A $100k regime cost on a $700k profit is still a great investment.