Negative Gearing: The Pros and Cons for Brunswick Investors

What Negative Gearing Means for Brunswick Property Investors

Negative gearing allows you to deduct rental property losses against your total income, reducing your tax bill when interest and holding costs exceed rental income. For established properties in Brunswick acquired before 12 May 2026, you can continue to claim these losses against salary or wage income indefinitely. For established properties acquired after that date, losses can only offset income from other residential properties from the 2027-28 financial year onward.

Brunswick's dual appeal as both an inner-city lifestyle precinct and a rental market with solid tenant demand makes it a location where investors often accept short-term cash flow deficits in exchange for long-term capital growth. With median unit prices sitting well above earlier levels and rental yields remaining moderate, many purchases in the suburb involve some level of negative gearing in the early years of ownership.

The question for Brunswick buyers now centres on timing and property type. If you acquire an established terrace or apartment after 12 May 2026, losses are quarantined to residential property income only. If you purchase a qualifying new build, or if you already hold a property, the old rules continue to apply.

How the Grandfathering Rules Work for Established Properties

Properties held at 7:30pm AEST on 12 May 2026, including those under contract at that time, remain fully deductible against all income until sold. Interest, property management fees, council rates, insurance, repairs and depreciation can all be claimed against salary, business income or any other assessable source.

Consider an investor who settled on a two-bedroom apartment on Albion Street in early May 2026. Annual interest costs run around $28,000, with another $6,000 in rates, insurance, body corporate fees and property management. Rental income brings in $26,000 per year. The $8,000 shortfall reduces taxable income and delivers a tax refund depending on the investor's marginal rate. That treatment continues for as long as the property is held.

If that same apartment were purchased today, the $8,000 loss could only be used against income from other residential properties. Without another rental property generating taxable income or a capital gain on sale, the loss would carry forward until a future year when residential property income is available to absorb it.

New Builds and the Negative Gearing Exemption

New builds remain exempt from the quarantining rules. Losses on eligible new residential properties can be deducted against all income, and investors can choose between the 50 per cent capital gains tax discount and the new indexed cost base with a 30 per cent minimum rate when they sell.

To qualify, the dwelling must be constructed on previously vacant land or replace an existing property where the number of dwellings increases. A knock-down rebuild that replaces one house with another does not qualify. Once a new build has been occupied for more than 12 months and is then sold to a subsequent investor, that second purchaser loses access to the exemption.

Brunswick's new build stock is concentrated in medium-density townhouse developments and apartment buildings along Sydney Road and near railway stations. These properties typically command a price premium over older stock, but they deliver full deductibility of losses and access to depreciation schedules that can add several thousand dollars per year in non-cash deductions.

The Debt-to-Income Limit and How It Affects Investor Borrowing Capacity

From 1 February 2026, lenders must limit new investor loans at a debt-to-income ratio of six times or greater to no more than 20 per cent of their investor lending each quarter. The limit applies separately to owner-occupier and investment loans, and it affects how much you can borrow if your total debt across all properties is high relative to your income.

An investor earning $120,000 per year who already holds $600,000 in owner-occupier debt sits at the threshold. Adding another $200,000 for a Brunswick investment property would push total debt to $800,000, which exceeds the six-times limit. That loan would count toward the lender's 20 per cent quarterly cap. If the lender has already allocated most of that cap earlier in the quarter, the application may be declined or referred to a different lender.

The limit does not prohibit high-DTI lending outright, but it creates a quarterly constraint that can affect approval timing and lender choice. Non-bank lenders are not currently subject to the limit, which opens up additional investment loan options for borrowers who fall outside a bank's quarterly allocation.

Capital Gains Tax Changes from 1 July 2027

From 1 July 2027, the 50 per cent CGT discount is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains for most residential investment properties. Gains accruing before 1 July 2027 are taxed under the current rules, and gains accruing after that date are taxed under the new system.

If you purchase a Brunswick apartment today and sell it in ten years, you will apportion the gain between the pre-1 July 2027 period and the post-1 July 2027 period. You can obtain a market valuation as at 1 July 2027 or apply an ATO apportionment formula. The portion accruing before 1 July 2027 receives the 50 per cent discount if you are an individual, trust or partnership. The portion accruing after that date is indexed to CPI, and you pay tax on the real gain only, subject to a 30 per cent minimum rate if your marginal rate is lower.

For eligible new builds, you can choose between the old discount method and the new indexed method at the time of sale. The choice allows you to model which approach delivers the lower tax bill based on inflation and your marginal rate in the year of sale.

Interest-Only Loans and Cash Flow Management

Interest-only repayments keep monthly outgoings lower during the early years of ownership, which can be useful when a property is negatively geared. The interest component remains fully deductible provided the loan was used to acquire or hold the rental property. Principal repayments are not deductible, so switching to interest-only can increase the proportion of your repayment that generates a tax benefit.

Most lenders offer interest-only periods of up to five years on investment loans, after which the loan converts to principal and interest. Extending the interest-only period beyond five years or taking an interest-only loan above 80 per cent LVR may trigger a non-standard classification under prudential standards, which can affect pricing and approval.

Brunswick investors using interest-only structures typically do so to manage cash flow in the short term while relying on capital growth and rental increases to improve serviceability before the loan reverts. The strategy works when income rises or the property is sold or refinanced before the principal and interest period begins.

Borrowing Capacity and the Serviceability Buffer

Lenders assess your ability to service an investment loan at an interest rate at least 3.0 percentage points above the actual product rate. Rental income is included in the assessment, but most lenders apply a shading factor of 20 per cent to account for vacancy, maintenance and management costs. That means 80 per cent of the gross rental income is counted toward serviceability.

For a Brunswick property generating $26,000 per year in rent, the lender includes $20,800 in your income assessment. If the loan amount is $550,000 and the product rate is 6.3 per cent, the lender tests serviceability at 9.3 per cent. The annual repayment at that rate on a principal and interest loan over 30 years would be around $53,000, which must be covered by your salary, rental income and any other assessable income after accounting for living expenses and existing commitments.

The buffer ensures you can continue to service the loan if interest rates rise, but it also limits how much you can borrow, particularly when adding a second or third property to your portfolio. Investors with multiple properties often find that borrowing capacity becomes the binding constraint rather than deposit size.

Stamp Duty and Upfront Costs in Victoria

Stamp duty on investment properties in Victoria is calculated on the full purchase price with no concessions or exemptions available to investors. For an established property purchased at the current median unit price in Brunswick, stamp duty would add several thousand dollars to the upfront cost. You can estimate the figure using the stamp duty calculator before committing to a purchase.

Other upfront costs include conveyancing, building and pest inspections, loan application fees and lenders mortgage insurance if your deposit is below 20 per cent. LMI premiums are calculated on a sliding scale based on loan amount and LVR, and the premium can be capitalised into the loan or paid upfront. Stamp duty on the LMI premium may also apply in Victoria.

All of these costs form part of the cost base for CGT purposes, which means they reduce your taxable gain when you eventually sell. Loan establishment fees and LMI premiums may also be deductible over five years or the term of the loan, whichever is shorter.

Using Equity to Fund Your Deposit

Many Brunswick investors use equity release from an existing home to fund the deposit on an investment property rather than saving cash. If your owner-occupied property has increased in value and you have paid down the loan, you may be able to borrow against that equity without selling.

Lenders will typically allow you to access equity up to 80 per cent of the property's current value, less any existing debt. If your home is worth $900,000 and you owe $400,000, you could potentially access up to $320,000 in equity. That amount can be used as a deposit and to cover stamp duty and other costs on the investment purchase.

The additional borrowing secured against your home is deductible if the funds are used to acquire an income-producing asset. The portion secured against the investment property itself is also deductible. Keeping the loans separate or clearly documented ensures you can claim the correct interest deductions at tax time.

Call one of our team or book an appointment at a time that works for you. We'll review your current position, run the numbers on Brunswick properties that match your criteria, and structure the loan to support your goals while managing cash flow and tax outcomes over the life of the investment.

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