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 in 5 lines
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 — the one new risk
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.
⑤ What's NOT changing
Owner-occupier main residence — full CGT exemption preserved.
SMSF / super fund property — explicitly excluded; 15% income tax + ⅓ CGT discount unchanged.
New builds — investor chooses better of old or new method at sale; negative gearing preserved.
Existing properties (held pre-budget) — grandfathered indefinitely.
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 to debunk
"Negative gearing is abolished"
❌ Myth. ✅ Reality: Restricted/quarantined for established residential only. Still fully available for new builds, build-to-rent, SMSFs, widely-held trusts, commercial property, and shares.
"Property is no longer a good investment"
❌ Myth. ✅ Reality: Structural advantages — leverage on a hard asset, inflation hedge via fixed IO loan, rent growth — are intact. 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.
5 · The bigger picture
★ The strongest pro-property argument: leveraged property is a stronger inflation hedge than shares
Both asset classes face the same CGT changes. But four mechanics make leveraged residential property structurally advantaged in inflationary environments:
① Loan is nominally fixed — inflation erodes real value of debt (no shares equivalent).
② Rent grows with CPI — operating income is implicitly indexed.
③ Indexation lifts the cost base, leverage amplifies that lift ~5×.
④ Rent IS a CPI input — rising rents drive CPI which drives more indexation. Self-reinforcing.
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, but flag them honestly: "the law is settled in direction; technical detail is still landing."
1 · Using this with clients
The 30-second pitch
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.
What this calculator does NOT replace — when to refer up
This is a conversational aid for you. 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.
Arming your client with the right experts
The new regime makes the property choice itself more consequential — 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.
Worth flagging to clients: buyer's agent fees on an investment property are typically capitalised into the cost base at sale, reducing the eventual CGT bill. The cost is effectively partially tax-recouped at the client's marginal rate (subject to the new CGT rules) — not the same as an immediate income deduction, but a real economic benefit nonetheless. Always have the client confirm treatment with their tax agent.
Peach Property is Australia's most-awarded buyer's agent — a credible referral when your clients need help selecting the right asset to navigate the new regime. We partner with the best mortgage brokers around the country to help clients achieve their dreams of home ownership and financial security — your relationship with the client stays primary; we add the property-selection expertise that complements your loan structuring.
Common client questions you'll get — quick answers
"Is property dead?" No. Run "The non-event" scenario — typical impact is <5% of total return.
"Should I sell my IP now?" Almost certainly not. Pre-12 May 2026 properties are grandfathered indefinitely. Selling triggers immediate CGT for no benefit.
"Should I switch to shares?" Shares face the same CGT changes. Property keeps its leverage advantage and inflation hedge — see "The bigger picture" below.
"What about my SMSF?" Excluded entirely. Toggle SMSF on the calculator — OLD = NEW.
"Should I buy a new build instead?" Often no — fundamentals remain the important driver. What is your client's expectation of future capital growth? Historically, established homes in well-located, fundamentals-supported areas have outperformed new builds. The new regime tilts the tax in favour of new builds (preserved negative gearing + choice of CGT method at sale), but a weak-growth new build will still underperform a strong-growth established home. Run both scenarios in the calculator and compare net pocket — fundamentals usually beat tax structure when the growth gap is meaningful.
Choose a scenario that matches your client
The 8 buttons at the top of the inputs panel each illustrate a specific outcome. Defaults are calibrated to a $1M baseline so you can toggle between scenarios for direct comparison.
Most-used: "The non-event" for typical clients · "High LVR, low growth" when warning about the loss-pool trap · "New build win" when reframing toward OFP · "SMSF (excluded)" for HNW clients considering super-based holding.
Talk-track for the headline numbers
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.