Buying an Investment Property in WA After the Negative Gearing Changes: A Full Worked Example

If you're thinking about buying an investment property in Perth right now, you're doing it under a genuinely different tax environment to the one investors faced a year ago. The 2026 Federal Budget changed how negative gearing works for established properties — and if you don't understand exactly what changed, it's easy to either overestimate what you'll get back at tax time, or wrongly assume investing no longer makes sense at all.

Neither is true. This article walks through exactly what changed, then works through a complete real-world example — loan structure, equity release, cash flow, and the tax claims that are genuinely still available — using a typical Perth family as the case study.

What Actually Changed

As part of the May 2026 Federal Budget, the Government reformed negative gearing and capital gains tax for residential property. These changes are now law. Here's the part that matters most for anyone buying an established (i.e. not brand new) investment property from here on:

The core change

If you buy an established residential property, any rental loss can no longer be deducted against your salary or other personal income. From 1 July 2027, those losses are "quarantined" — they can only be offset against rental income or capital gains from residential property, and can be carried forward to future years.

A few important boundaries on this:

• Grandfathering: Any established property you already owned, or were already under contract on, before 7:30pm on 12 May 2026 keeps full access to negative gearing under the old rules for as long as you hold it.

• New builds are exempt: If you buy an eligible new build, you can still negatively gear it and access it both before and after 1 July 2027 — this exemption exists specifically to keep investment flowing into new housing supply.

• Trusts, super funds and build-to-rent: Widely held trusts, superannuation funds (including SMSFs), and build-to-rent developments are excluded from the change.

• Capital gains tax: The 50% CGT discount is being replaced with cost base indexation and a 30% minimum tax rate, applying to gains that accrue after 1 July 2027 — regardless of when the property was purchased.

For an established property bought after budget night — which is the scenario most Perth investors are now in — the practical effect isn't that the property becomes untaxed or unloved. It's that the property has to increasingly stand on its own two feet from a cash flow perspective, rather than leaning on a tax refund from your salary to prop it up.

The Case Study

To make this concrete, here's a scenario we see regularly with Perth families. Meet our example couple: both are 40, married, with one child aged 12. Each earns a $130,000 salary — $260,000 combined household income before the investment property. They have no debts other than their existing home loan; no personal loans, no car finance, no credit card balances carried month to month.

Owner-Occupied Home (PPOR — stays the family home)
Estimated value	$1,000,000
Current loan balance	$450,000
Remaining term	20 years
Interest rate	5.99%

Target Investment Property
Purchase price	$700,000
Current rental income	$750/week ($39,000/yr)
Investment loan rate	6.14%

Household Profile
Combined gross income	$260,000 ($130,000 each)
Dependants	One child, aged 12
Other debts	None

This is an established property purchased after 12 May 2026 — so for this article, we're assuming no access to negative gearing against salary income at all. That's the hardest version of this decision, and if it stacks up here, it'll stack up in easier scenarios too.

On the borrowing side, this household is in a genuinely strong starting position: a combined $260,000 income, an existing mortgage as the only debt, and full-time secondary schooling still a couple of years off for their 12-year-old rather than an immediate cost pressure. That doesn't replace an actual serviceability assessment — every lender applies its own income shading, expense benchmarks (HEM) and interest rate buffers — but it's the kind of profile that generally supports the borrowing this scenario requires.

Structuring the Loan: Where the Deposit Actually Comes From

With $550,000 of equity in the family home, this family doesn't need cash savings to fund the purchase — the deposit and purchase costs come from equity release, structured as a separate loan split secured against the PPOR.

Funding requirement	Amount
20% deposit	$140,000
WA stamp duty (general rate, $700K)	$27,265
Other purchase costs (conveyancing, inspections, lender fees — estimate)	$3,000
Total equity release required	$170,265

The structure looks like this:

• Split 1 — existing PPOR loan: $450,000 stays as-is, secured against the family home, at 5.99%.

• Split 2 — equity release: a new $170,265 split, also secured against the family home, but drawn specifically to fund the investment purchase.

• Split 3 — investment loan: $560,000 (80% of the purchase price), secured against the new investment property, at 6.14%.

The detail people get wrong

Split 2 is secured against the family home — but because the funds are used to buy an income-producing asset, the interest on it is tax-deductible, and most lenders will price it at the investment rate (6.14%), not the cheaper owner-occupier rate. Deductibility and pricing follow the purpose of the funds, not which property secures the loan. Keeping this split completely separate — never blended with PPOR debt or everyday spending — is what keeps that deductibility clean and defensible at tax time.

At 80% total lending against the investment property and equity draw of $170,265 against the home, the combined loan-to-value ratio across both properties sits at roughly 69% — comfortably within standard lending limits, and Keystart-style no-LMI thresholds aren't relevant here since this is investment lending, but it's well clear of the 80% mark where Lender's Mortgage Insurance would typically apply on either security.

The Real Cash Flow: What This Costs Week to Week

This is where the negative gearing changes actually bite — not in whether the numbers work, but in how the shortfall is funded.

Annual rental cash flow	Amount
Gross rent ($750/wk)	$39,000
Less: property management (8%)	–$3,120
Less: council + water rates	–$2,800
Less: landlord insurance	–$650
Less: maintenance allowance	–$1,200
Less: accounting/tax agent fee	–$550
Net rental income before interest	$30,680
Less: interest, both splits (Interest-Only, 6.14%)	–$44,838
Cash shortfall (before depreciation)	–$14,158/yr

That's a shortfall of roughly $272 a week that has to come from the family's own cash flow — interest-only, on both splits. On a combined take-home income north of $180,000 after tax, that shortfall is very manageable day-to-day — but it's still real money leaving the household budget every week, and it's the number to plan around, because under the new rules there's no tax refund arriving mid-year to help cover it.

Where the OO Loan Term Comes In

One lever this family has is the remaining term on the family home loan. It's currently 20 years into what may have originally been a 25 or 30-year term. Resetting it back out to a fresh 30-year term lowers the minimum required repayment — freeing up cash flow that can help absorb the investment property's shortfall.

PPOR loan ($450,000 @ 5.99%)	20yr (current)	30yr (reset)
Monthly repayment	$3,221	$2,695
Cash freed up	—	$121/week
Total lifetime interest	$323,123	$520,231

Resetting the term buys cash flow today at the cost of roughly $197,000 in extra interest over the life of the loan. That's not automatically the wrong call — but it's a real trade-off, not a free lunch, and it's worth revisiting each time you refinance rather than leaving on autopilot.

With no other debts competing for cash flow, this family has more room to choose deliberately here rather than being forced into a term reset out of necessity. Combining the two levers — loan structure and OO term — gives them a genuine set of options rather than one fixed outcome:

• OO unchanged + Interest-Only investment loan: ~$272/week shortfall, but the family home loan keeps paying down on the original schedule.

• OO reset to 30yr + Interest-Only: ~$151/week shortfall — the easiest cash flow position, at the cost of extending the family home debt.

• OO unchanged + Principal & Interest on the investment loan: ~$436/week shortfall, but the family is building equity in the investment property from day one, not just the home.

• OO reset to 30yr + P&I on investment loan: ~$314/week — a middle path that still builds investment equity while easing pressure on the home loan.

There's no universally "right" answer among these — it depends on the family's appetite for extending the home loan term, how they value building equity in the investment property versus flexibility today, and whether they'd rather bank the cash flow headroom for their child's upcoming high school years. This is exactly the kind of decision worth modelling properly against your actual numbers before you commit.

What Tax Claims Are Still Genuinely Available

This is the part that gets lost in headlines about negative gearing "ending." The property itself is still a normal tax entity — it still has deductible expenses, they just work against rental income rather than your salary. Here's what still applies to this purchase:

• Loan interest — fully deductible against the property's rental income, exactly as before. It just can't create a loss that reduces your salary tax.

• Property management, council and water rates, insurance, repairs and maintenance, and accounting fees — all standard deductions, unaffected by this reform.

• Capital works depreciation (Division 43) — if the property was built after September 1987, you can still claim 2.5% per year of the eligible original construction cost, even though it's an established dwelling. On a property like this, a quantity surveyor's depreciation schedule commonly identifies somewhere in the order of $8,000 a year in capital works deductions — a real, non-cash reduction in the taxable result.

• Borrowing costs — loan establishment fees, lenders mortgage insurance (if applicable) and similar costs are deductible, typically amortised over five years.

One thing that is not available, and this predates the 2026 reform: plant and equipment depreciation (Division 40) — carpets, blinds, appliances and the like — cannot be claimed on assets that came with an established property when you bought it. That rule has applied since 2017 and is separate from this year's changes; it only affects assets you purchase new yourself after settlement.

Putting it together for this property:

Cash shortfall (rent less cash expenses and interest)	–$14,158
Plus: capital works depreciation (non-cash)	–$8,000
Total taxable rental loss	–$22,158

Under the new rules, this $22,158 loss is quarantined: it cannot reduce tax on salary or wages this year. Instead it carries forward and sits waiting to offset either future rental profit from this property (for example, as rent rises or the loan balance reduces) or a future capital gain when the property is eventually sold. It isn't lost — it's deferred.

For comparison only — not available to this family

Both spouses earn $130,000, placing them in the 30% marginal tax bracket for 2026–27 (32% including the 2% Medicare levy). Under the old rules — still available for grandfathered properties and new builds — a $22,158 loss deductible against salary would have been worth approximately $7,091 as a tax refund for this household. That refund simply isn't part of this equation for an established property bought today, which is precisely why the cash flow modelling above matters so much more than it used to.

Worth checking: Medicare Levy Surcharge

At a combined income of $260,000 with one dependent child, this family sits above the $246,000 Tier 2 family threshold for the Medicare Levy Surcharge in 2026–27. If they don't hold private hospital cover, a 1.25% surcharge — roughly $3,250 a year — may apply. This is entirely separate from the investment property decision, but it's a genuine part of this household's overall tax position and worth confirming with their accountant.

Capital Gains: The Other Half of the Equation

Because this property is purchased after 12 May 2026, any capital gain that accrues after 1 July 2027 will be taxed under the new regime — cost base indexation plus a 30% minimum tax rate — rather than the old 50% CGT discount. In practice, this generally results in more tax being paid on a given nominal gain than under the old discount method, particularly over shorter holding periods. It's a genuine factor in the overall return calculation, and the quarantined rental losses built up along the way can be used to offset that eventual gain, which is some consolation.

So — Does It Still Stack Up?

For this family, buying this property costs somewhere between $151 and $436 a week out of pocket depending on the structure chosen, with no tax refund to soften that in year one. What they're buying with that cash flow is exposure to Perth property growth on a $700,000 asset funded mostly with borrowed money, plus a genuine (if deferred) tax loss they can use later. With a combined $260,000 income, no other debts, and a manageable weekly shortfall under any of the four structures modelled, this is a household with real choices — the question is less "can they afford it" and more "which structure suits how they want to live over the next five to ten years."

Whether that trade-off is right for a given family depends on things this article can't know — income stability, risk tolerance, other financial goals, and how the property's rent and value are likely to track. That's a conversation, not a formula.

Considering an investment purchase?

Let's model your actual numbers — equity position, borrowing capacity, and the loan structure that fits your goals.

Prefer to talk it through directly? Reach out at ian@finance365.com.au or 0439 365 365.

Disclaimer: This article is general information only and does not constitute tax, legal, financial or credit advice, and does not consider your personal objectives, financial situation or needs. The couple, income, property values, rental income and all figures used in this case study are entirely hypothetical and constructed for illustrative purposes — they do not represent any actual client of Ian Freeman Finance or Finsure Finance and Insurance Pty Ltd, and any resemblance to a real household is coincidental. Income tax rates, thresholds, the Medicare levy and Medicare Levy Surcharge figures reflect legislated 2026–27 settings at the time of writing and are subject to change; individual tax outcomes depend on total taxable income, deductions, offsets, private health insurance status, ownership structure and other factors not modelled here. Depreciation, running cost and rental yield figures are illustrative estimates only — an actual quantity surveyor's report and property-specific figures will differ. Lending scenarios, interest rates, loan structures and borrowing capacity are indicative and subject to individual lender credit criteria, policy and assessment; approval is not guaranteed and actual serviceability outcomes depend on full financial disclosure. This article does not consider superannuation, insurance, estate planning or a household's complete financial position. Please seek advice from a registered tax agent or accountant regarding your specific tax position, and speak with a licensed financial adviser for holistic financial planning advice, before making any investment or borrowing decision. Ian Freeman is a Credit Representative Number 439731 of Australian Credit Licence 384704 (Finsure Finance and Insurance Pty Ltd).