How to Restructure Property Loans Before Negative Gearing Shrinks

Most investors are asking the wrong question after the 2026 Budget. It’s not “Should I sell?” – it’s “Have I structured my loans so the new tax rules don’t quietly bleed me for the next 20 years?”

Restructuring existing loans now is about one thing: making sure every dollar of interest that can still be deductible actually is, and every non-deductible dollar is paid down first. Under the 2026–27 reforms, negative gearing on many established properties purchased after 12 May 2026 is effectively abolished from 1 July 2027, while older and qualifying new-build properties keep current rules.[1][2][10][12][17] How your loans are set up will decide whether you adapt smoothly or end up stuck with expensive, inflexible debt.

What I tell my clients is simple: don’t wait for your accountant’s 2027 year-end meeting. Use this year to deliberately reshape your home and investment loans so the new tax landscape works with your structure, not against it.

1. The new tax landscape: why structure suddenly matters more

Before we talk about refinancing or splitting loans, you need a clean mental model of what’s actually changing.

1.1 Quick recap of the 2026–27 reforms

From the current Budget package and reform bill:

1. Negative gearing on many established properties is being wound back. For established residential properties purchased at or after 7:30pm on 12 May 2026, investors can only offset rental losses against salary and other income until 30 June 2027. From 1 July 2027, those losses are quarantined against rental or capital gains only.[8][11][12][17]
2. Existing properties are broadly grandfathered. Residential investments held before 7:30pm on 12 May 2026 can continue under current negative gearing rules until you sell.[2][6][7][16]
3. New builds and certain structures are carved out. Negative gearing continues for qualifying new residential builds, certain build‑to‑rent and affordable housing programs, and residential property in superannuation funds.[1][3][9][15][20]
4. CGT treatment also tightens. The 50% CGT discount for individuals and trusts is being replaced with a more complex, often less generous regime, tied to CPI indexation and a 30% minimum tax on most capital gains.

In other words: from 2027, you’ll see a dual system – old rules for grandfathered holdings and new builds; new, harsher rules for many post‑Budget established properties.[10][19]

1.2 Why your loan structure is now a tax problem

Tax law doesn’t care what you call a loan – it looks at what the borrowed funds were actually used for.

That matters more now because:

• Deductible interest is scarcer – future negatively geared losses are quarantined and CGT relief is slimmer.
• Mixed-purpose loans are a headache – redraw used for home renovations, business cashflow or a car can permanently contaminate a loan that should have been fully deductible.
• APRA’s 3% buffer still bites – if you need to refinance to clean things up later, higher assessed rates can block your options.

My rule of thumb: if your loan statements don’t make it obvious which dollar belongs to which property or purpose, you’re flying blind in the new regime.

For a gentle primer on gearing concepts in this environment, see Plain-English Gearing Basics Every Australian Property Investor Must Know.

2. The three big mistakes I’m seeing in 2026 portfolios

Most restructuring work I do for investors and small business owners starts with the same three problems.

2.1 Home and investment debt blurred together

Common patterns:

• One big loan secured by the home, used over time for the home, an investment property deposit and maybe even shares.
• A single offset account used for both personal savings and rental income.

Result: the interest is partly deductible, partly not, and very hard to untangle. Under the new rules, that complexity isn’t just annoying – it can mean permanently losing deductions you might otherwise have kept.

2.2 Cross‑collateralised, inflexible security

Many lenders still love this structure:

• One large facility secured by the home and multiple investment properties.
• Limited internal splits, so each adjustment requires the whole portfolio to be re‑assessed.

As I explain in How to Design Flexible Investment Loan Structures for Smarter Gearing, cross‑collateralisation kills flexibility. In a tightening tax regime, you want the ability to sell or restructure one asset at a time without the bank re‑pricing your entire portfolio.

2.3 Redraw used as an all‑purpose piggy bank

Investors often:

• Park salary and rent into an investment loan with redraw
• Pull funds out later for private expenses

From a tax perspective, each redraw for personal use converts a slice of the loan from deductible to non-deductible. If you keep doing it, you eventually end up with a loan the ATO may see as part investment, part personal, and very hard to apportion.

What I tell my clients: in the new regime, offset is your friend, redraw is for emergencies.

Separating home and investment debt with clear splits and offsets makes tax treatment cleaner under the new rules.

3. A practical framework to restructure this year

Here’s the decision-grade process I use in client reviews. You can work through the logic yourself this week, then sit down with your broker and tax adviser to implement.

3.1 Step 1 – Map every loan to its underlying use

Create a simple table for each facility:

• Loan name / number
• Security (which property/ies)
• Original purpose (e.g. PPOR purchase, IP deposit, refi, equity release)
• Current balance
• Interest rate and type (variable/fixed, P&I/IO)
• Whether the interest is fully, partly or not deductible

If you can’t answer those questions from your statements, that’s your first problem to fix.

3.2 Step 2 – Separate deductible vs non-deductible debt

Your goal is to move towards one primary loan per property, with clear internal splits where needed, and to align each split with a single purpose.[14][18]

Typical end‑state structure:

• Home (PPOR)
  • Split A – non-deductible home loan (P&I, main focus of extra repayments)
  • Offset A – all personal savings and salary
• Investment Property 1 (grandfathered)
  • Split B – purchase price + costs (deductible)
  • Split C – later renovations (deductible)
  • Offset B – rents and investment buffer
• Investment Property 2 (post‑Budget established)
  • Split D – purchase price (deductible, but losses quarantined from 2027)

Where loans are currently mixed:

• Consider a refinance with internal splits to ring‑fence the deductible portion
• Or, where refinance is impossible (e.g. high LVR, falling values), use a restructure with the current lender – many will allow internal re‑splits without full credit reassessment; see also /insights/refinancing-high-lvr-when-property-values-fall.

3.3 Step 3 – Redirect cashflow towards non-deductible debt

Once debts are clearly separated, your priority should be:

1. Aggressively pay down non-deductible home debt
2. Maintain or slightly reduce deductible investment debt, depending on your risk appetite and serviceability

A simple example:

• Home loan (non-deductible) – $800,000 at 6.0% P&I over 25 years
• Investment loan – $600,000 at 6.2% IO
• Combined surplus cashflow – $2,000/month

If you simply pay minimums on both, you might put $1,000 extra to each and feel good. But if you direct the entire $2,000 extra into the home loan, you can shave years off and save tens of thousands in non-deductible interest, without materially changing your investment position.

In the new tax environment – where negative gearing benefits are shrinking and investment interest is less powerful as a tax shield – this order of attack becomes even more important.

3.4 Step 4 – Clean up redraw and move to offsets

Practical changes you can make this month:

• Stop treating redraw as your day‑to‑day transaction account
• Move all personal cash to an offset linked to your home loan
• Keep a separate offset for each major investment facility
• Where a loan has been heavily contaminated by redraw, explore a partition: leave the messy bit where it is, and set up a clean split for future deductible borrowing

This approach echoes the principles in Restructuring Loans So Your Property Portfolio Can Keep Growing: clear splits, clean purposes, and buffers in the right offsets.

4. Specific plays for different investor profiles

Restructuring isn’t one-size-fits-all. Here’s how I’m thinking about it for different types of clients.

4.1 Homeowner with one investment property

Typical situation:

• PPOR with a big non-deductible loan
• One established investment bought pre‑May 2026 (grandfathered)

My priorities:

1. Maximise your ability to keep the investment long term – because it retains full negative gearing and better CGT treatment.
2. Restructure so all surplus cash hammers the home loan, using an offset so you can still access funds.
3. Keep the investment loan interest‑only for a period, if cashflow and risk tolerance allow, to accelerate home loan reduction.

This is the classic debt recycling setup, but the new rules make sequencing more sensitive. Future articles in this hub will go deeper on this.

4.2 Self‑employed investor with multiple properties

Self‑employed and business owners are bearing a lot of the Budget’s complexity load – negative gearing tweaks, trust reforms, and more. The key is to avoid blending business and property risk.

For these clients I focus on:

• De‑linking business overdrafts and property equity where possible
• Ensuring each property is on its own split, not just lumped into a single business facility
• Building larger cash buffers in offsets, because your income is more volatile and APRA stress tests are harsher on self‑employed borrowers

If that’s you, read alongside Property strategy for self‑employed and high‑income investors after tax shifts – it ties tax, lending and entity choice together.

4.3 SMSF and near‑retirees with property-heavy portfolios

Super funds are currently excluded from the negative gearing changes,[20] but that doesn’t mean you can ignore structure.

For pre‑retirees and SMSF trustees, I look at:

• Whether it’s time to gradually deleverage high‑LVR assets outside super
• Using surplus cashflow to reduce non-deductible home debt, improving retirement resilience
• Structuring SMSF loans (where allowed) so each asset is quarantined, making it easier to sell a underperforming property without disturbing the whole fund

Pair this with Smart moves for pre‑retiree property investors under new tax rules and /insights/smsf-property-after-budget-buy-hold-sit-tight if you’re in this camp.

Mapping each property and its loan against the new tax rules is the first step to a smart restructure.

5. How to decide whether to refinance or just restructure

The mistake I see most is people thinking “restructure” automatically means “refinance to a new lender”. In a world of higher rates and tighter servicing, that’s not always realistic.

Think in three layers:

5.1 Internal restructure with your current lender

Best when:

• Your loan-to-value ratio (LVR) is high and LMI top‑ups would be expensive
• Your income is variable and you’re borderline on APRA’s 3% buffer
• Your current rate is reasonably competitive

What to ask for:

• New internal splits to align with each property and purpose
• Switching some principal-and-interest loans to interest‑only on investment splits (with a clear plan)
• Additional or re‑linked offset accounts

5.2 Full refinance to a new lender

Worth the effort when:

• Your LVR is comfortably under 80%
• You can clear the new lender’s serviceability tests
• Your existing structure is so messy it’s easier to rebuild from scratch

In this case, you’re designing a clean, future‑proof structure with standalone securities and splits from day one.

Just remember: don’t chase refinance cashbacks alone; many are gone or smaller now, and the real prize is structure plus rate, not gimmicks.

5.3 Strategic sell-and-redeploy

Sometimes the cleanest restructure is to accept that a particular asset no longer stacks up:

• Post‑Budget established properties that will lose negative gearing, with thin yields
• High‑maintenance, low‑growth stock that’s chewing up borrowing capacity

Here, a sale might:

• Clear non-deductible home debt
• Free up equity to buy a qualifying new build or better‑located asset
• Simplify a tangled loan structure

This is where tax, lending and lifestyle planning collide – don’t make the call based on tax rules alone.

6. A one-week action plan you can actually follow

To keep this practical, here’s what I’d suggest you do this week.

Day 1–2: Gather and map

• Download 12 months of statements for every loan and offset
• Build the mapping table from section 3.1
• Highlight any mixed-purpose or unclear facilities

Day 3–4: Sketch your ideal end-state

• Decide how many properties you want to hold over the next 5–10 years
• Mark which ones are grandfathered, which are post‑Budget established, and which are new build or SMSF
• Draft a simple version of your ideal structure: one main split per property, buffers in offsets, clear attack on non-deductible debt

Day 5–7: Talk to a triple‑credential adviser

Book a session with someone who can see all three angles – tax, lending and long‑term strategy. The conversation should cover:

• Which changes your current lender can implement internally
• Whether a staged refinance over 12–24 months makes sense
• How your structure should line up with entity choices and future purchases (a topic we expand on in the sibling piece on entity choice)

If you do that this week, you’ll be ahead of 95% of investors still arguing on social media about whether the reforms are “fair”, instead of quietly restructuring for the new rules.

FAQs

1. Should I rush to buy more investment properties before the 2026 deadline?

Not automatically. While existing properties held before 7:30pm on 12 May 2026 are grandfathered for negative gearing, buying in a rush can leave you over‑leveraged or stuck with poor‑quality stock. Focus first on cleaning up your structure and making sure any purchase stands on its own merits without relying on tax concessions.

2. Is it still worth keeping negatively geared properties after the reforms?

For grandfathered and qualifying new-build properties, yes – the tax treatment largely continues, so the decision comes back to yield, growth prospects and your risk tolerance. For post‑Budget established properties that will lose negative gearing from 2027, you need to model the after‑tax cashflow carefully and consider whether your capital is better redeployed elsewhere.

3. Do I have to refinance to separate deductible and non-deductible debt?

Not always. Many lenders can create internal splits against your existing facilities without a full refinance, especially if you’re not increasing the overall limit. This can be a practical way to ring‑fence deductible investment debt and focus repayments on your home loan when your LVR or serviceability makes a full refinance difficult.

4. How does this affect debt recycling strategies?

Debt recycling – paying down non-deductible home debt and re‑borrowing for investment – still works conceptually, but the margin for error is smaller. You’ll need cleaner loan splits, disciplined use of offsets instead of redraw, and a sharper eye on the reduced tax benefits from negative gearing and CGT; professional advice is strongly recommended.

5. Are SMSF property loans safe from the negative gearing changes?

Current announcements indicate that residential property held in superannuation funds is exempt from the new negative gearing restrictions, so existing treatment broadly continues. That doesn’t remove investment risk though; SMSF property still requires conservative gearing, strong buffers and a clear retirement income strategy rather than relying on tax features alone.

Key takeaways

• The 2026 reforms create a dual system where grandfathered and qualifying new builds retain more generous negative gearing, while many post‑Budget established properties lose it from 2027.
• The most valuable move this year is to separate deductible and non-deductible debts, using clear loan splits and offsets rather than blurred redraw.
• Prioritise paying down non-deductible home debt, while keeping investment loans clean and flexible enough to refinance or sell individual properties if policy shifts again.
• Self‑employed, pre‑retirees and SMSF investors need to integrate loan restructuring with entity and retirement strategy, not treat it as a stand‑alone exercise.

If you want help mapping and implementing a restructure, book a free 20‑minute loan and tax strategy call at /strategy-call. Your tax, your loan, one expert – a CPA, Tax Agent and Mortgage Broker in one conversation.

General advice only.