After‑Tax Cashflow on Investment Loans: Worked Reform Examples

Key Takeaway

This article explains how after‑tax cashflow on Australian investment loans changes before and after the 2026–27 negative gearing reforms, using simple worked examples. It compares a typical negatively geared unit and a near‑neutral townhouse under current rules versus quarantined loss rules that apply to many established properties from 1 July 2027. The worked figures show how a pre‑tax loss of around $8,000 can flip from a $2,600 tax refund to a full cash outlay, highlighting the need for updated property cashflow modelling before committing to new debt.

For most investors, after‑tax cashflow on an investment loan will be weaker after the 2026–27 negative gearing reforms, especially for established properties bought after 12 May 2026 that won’t be able to offset rental losses against salary from 1 July 2027. You need to model pre‑ and post‑reform cashflow before you buy, restructure or sell.

Here’s the quick rule of thumb:

If your investment was relying on a big tax refund to feel affordable, assume that refund shrinks or disappears under the new rules and check whether the property still works on its own numbers.

Cashflow comparison graphic for negatively geared property before and after tax reforms Tax reforms change after‑tax cashflow even when rent and interest stay the same.

Example 1: Negatively geared unit – before vs after reforms

Assumptions (illustrative only):

Purchase price: $800,000 established unit (settles July 2026)
Loan: $720,000 interest‑only, 6.5% p.a.
Gross rent: $750 per week = $39,000 p.a.
Non‑finance costs (rates, strata, insurance, maintenance, management): $12,000 p.a.
Depreciation and capital allowances: $4,000 p.a.
Investor on marginal tax rate ~37% + Medicare (assume 39%).

Step 1: Pre‑tax cashflow

Interest: 6.5% × $720,000 = $46,800
Non‑finance costs: $12,000

Cashflow before tax and depreciation:

Rent: $39,000
Less interest and cash expenses: $46,800 + $12,000 = $58,800
Pre‑tax cashflow (actual dollars): -$19,800 p.a.

This is the real out‑of‑pocket cost before tax and non‑cash deductions.

Step 2: Tax position under current rules

For tax, you also deduct depreciation:

Deductible expenses for tax: $58,800 + $4,000 = $62,800
Taxable rental loss: $39,000 − $62,800 = -$23,800

At a 39% marginal rate:

Tax saving from negative gearing: 39% × $23,800 ≈ $9,282

After‑tax cashflow:

Pre‑tax cashflow: -$19,800
Plus tax saving: +$9,282
After‑tax cashflow (current rules): about -$10,500 p.a. (~-$200 per week)

The investor is still cashflow negative, but the tax refund softens the blow.

Step 3: Tax position after reforms (loss quarantined)

Under the reforms (per the 2026–27 Budget and the Tax Reform No.1 Bill), many established residential properties bought after 12 May 2026 will have rental losses quarantined. In simple terms, you can’t use the loss to reduce your salary; it can usually only offset future rental income or gains from that property.

Mechanically, your pre‑tax cashflow stays exactly the same:

Still -$19,800 p.a. out of pocket.

But now, the loss no longer produces a $9,282 refund against your wages.

So:

After‑tax cashflow (loss quarantined): about -$19,800 p.a. (~-$380 per week)

That’s almost $180 per week worse purely from the tax rule change, with the same rent, rate and expenses.

Example 2: Near‑neutral townhouse – tipping into pain after reforms

Not every property is highly negatively geared. Many investors deliberately target near‑neutral cashflow. The reforms still matter; they can turn a small, manageable shortfall into something that strains buffers. Assumptions: - Purchase price: $900,000 new townhouse (qualifies as a ‘new build’) - Loan: $720,000 P&I, 6.2% p.a., 30‑year term - Gross rent: $900 per week = $46,800 p.a. - Non‑finance costs: $11,000 p.a. - Depreciation/capital allowances: $6,000 p.a. Approximate annual P&I repayment at 6.2%, 30 years: about $53,200 Split repayment into interest and principal (first year): - Interest: roughly 6.2%…

Frequently asked questions

Will existing negatively geared properties lose their tax benefits?▾

Most existing properties bought before the key Budget dates are expected to be grandfathered, so current negative gearing treatment usually continues, subject to final legislation. New purchases of many established properties after 12 May 2026 are likely to face quarantined rental losses that can no longer reduce salary tax. Always confirm timing and eligibility with your tax adviser.

Do these changes affect commercial property loans?▾

Current Budget material indicates the reforms mainly target residential property, with many commercial assets and institutional structures outside the new negative gearing limits. However, broader tax changes, especially to capital gains, can still affect your overall return. You should still model commercial deals on both pre‑ and after‑tax cashflow with conservative assumptions.

How accurate do my cashflow models need to be before I buy?▾

Your models don’t need to be perfect, but they must be realistic and conservative. Include interest, all non‑finance costs, principal (if P&I), and a sensible estimate of tax impact under both current and new rules. Then stress test for higher interest rates and reduced rent to see if you can comfortably support the property from your household or business cashflow.

Speak with a specialist advisor

Confidential consultation, bespoke advice for your situation.

Real Numbers: After‑Tax Cashflow on Investment Loans Before and After Reforms