Worked After‑Tax Cashflow: Geared Property Before & After Rule Changes

For a standard geared investment property, after‑tax cashflow used to improve materially from negative gearing; after the 2026–27 reforms, many new established properties bought after 12 May 2026 will see those tax benefits quarantined, so pre‑tax cashflow must now largely stand on its own. The worked examples below show, in dollars per week, how your position changes before and after the rule changes so you can decide what still stacks up.

In plain English:

• Existing properties (bought before 12 May 2026) generally keep old negative gearing treatment (grandfathered).
• New builds stay relatively favoured.
• Established properties bought after 12 May 2026 get much weaker tax relief on rental losses.

Visualising pre-tax and after-tax cashflow makes rule changes easier to understand.

1. Key assumptions and what’s actually changed

1.1 The rules in one minute

Based on the 2026–27 Budget measures and draft law:

1. Grandfathered properties: Residential investments bought before 12 May 2026 mostly keep full interest deductibility and offset rental losses against other income.
2. New builds: New residential dwellings continue to get broadly similar negative gearing treatment to the old rules, aimed at supporting supply.
3. New established properties: Residential properties bought after 12 May 2026 that aren’t new builds face quarantining of rental losses – many losses can only be used against future rental income or capital gains.
4. Commercial property: Appears largely outside the negative gearing crackdown, but still exposed to CGT reforms.

The upshot aligns with the cluster overview in /insights/will-tighter-negative-gearing-rules-kill-property-investing-reality-check: the old “big loss now, big tax refund later” play on established properties is mostly dead from 2027.

1.2 Assumptions for our worked examples

To keep things concrete but simple, we’ll use:

• Property price: $700,000
• Loan: 80% LVR = $560,000
• Interest rate (IO): 6.5% p.a.
• Gross rent: $700 per week = $36,400 p.a.
• Non‑finance costs (rates, insurance, maintenance, agent fees, strata, etc.): $10,000 p.a.
• Investor’s marginal tax rate: 37% + 2% Medicare = 39%

Interest‑only (IO) is used here because many geared investors still run IO for cashflow. For a deeper IO vs P&I comparison, see /insights/interest-only-vs-principal-and-interest-investment-gearing-cashflow.

2. Example A – Grandfathered property under old rules

2.1 Pre‑tax position (grandfathered)

Annual interest: 6.5% × $560,000 = $36,400

So you’re negatively geared by $10,000 p.a.

2.2 After‑tax impact – pre‑reform / grandfathered

Under the old rules (and for grandfathered assets under the reforms):

• The $10,000 rental loss can be offset against your salary and business income.
• At 39% marginal tax rate, the tax refund / saving is:

$10,000 × 39% = $3,900 tax benefit.

Now look at actual cash in vs out.

Out‑of‑pocket cash (ignoring depreciation):

• Interest: $36,400
• Other costs: $10,000
• Total cash out: $46,400
• Rent in: $36,400

Net pre‑tax cashflow = $36,400 − $46,400 = −$10,000 p.a. (about −$192 per week).

After‑tax cashflow = −$10,000 + $3,900 = −$6,100 p.a. (about −$117 per week).

In human terms: you’re paying $117 per week out of pocket after tax to control a $700k asset.