Common Mistakes with Negative Gearing in Craigieburn

Negative gearing has changed.

From 1 July 2027, rental losses on most residential properties bought after May 2026 can no longer be offset against your salary or other income. They can only reduce tax on other rental income or future property gains. If you're considering an investment property in Craigieburn and counting on the usual tax relief from losses, the rules you're working with may already be out of date.

How Negative Gearing Worked Until Recently

Negative gearing allowed property investors to claim rental losses against their total income. When your mortgage repayments, council rates, insurance and other costs exceeded the rent, that shortfall reduced your taxable income and lowered your tax bill each year.

Many Craigieburn investors relied on this to offset holding costs during the early years of ownership, particularly when interest-only repayments kept borrowing costs high. The tax relief helped bridge the gap until rents increased or the property was eventually sold.

What Changed in the Treasury Laws Amendment Act 2026

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. Properties purchased after 7:30pm on 12 May 2026 are affected by new quarantine rules that take effect from 1 July 2027.

Under the new rules, rental losses on these properties can only be offset against other residential rental income or carried forward to reduce future rental income or capital gains. The losses cannot reduce tax on wages, business income or other sources. Properties you already owned at 7:30pm on 12 May 2026, or those under contract at that time, continue under the old rules until you sell.

There is a carve-out for new builds. If you buy a property built on previously vacant land, or a development where the number of dwellings has increased, you can still claim rental losses against your general income. A knock-down rebuild that replaces one house with one house does not qualify. Once a new build has been occupied for more than 12 months, the next buyer loses access to negative gearing under the old rules.

How Craigieburn Investors Are Adjusting Their Strategy

Craigieburn sits around 26 kilometres north of Melbourne's CBD and has attracted investors over the past decade due to steady rental demand from families and commuters working in the northern employment corridor. The area is serviced by Craigieburn station on the Craigieburn line and is close to established shopping centres including Highlands and Craigieburn Central.

Consider a buyer looking at a three-bedroom house in Craigieburn purchased in late 2026. Under the new rules, any rental shortfall from July 2027 onward cannot reduce their taxable salary. If weekly rent is lower than the combined cost of mortgage repayments, rates, insurance, strata fees and maintenance, that loss sits on hold until they earn other rental income, sell the property, or buy additional investment properties that generate a profit.

Some local investors are now targeting properties closer to neutral or positive cash flow from the outset. That might mean a smaller loan, a shorter interest-only period, or choosing an established unit in Craigieburn with higher rental yield rather than a detached house with stronger long-term capital growth but weaker short-term income. Others are looking at new builds in growth corridors further north or west where rental losses remain fully deductible.

Transitional Rules and Grandfathering

Properties acquired between 7:30pm on 12 May 2026 and 30 June 2027 can be negatively geared under the old rules until 30 June 2027. After that, the quarantine applies.

If you purchased or exchanged contracts before the 12 May 2026 announcement, your property is grandfathered. You can continue claiming rental losses against all income until you dispose of the property, regardless of how long you hold it.

Settlement timing matters. A Craigieburn investor who exchanged in early May 2026 but settled in July 2026 retains full negative gearing. An investor who exchanged in June 2026 does not.

Capital Gains Tax and the 30 Per Cent Minimum Rate

From 1 July 2027, the 50 per cent capital gains discount for individuals on investment properties is replaced with cost base indexation and a minimum 30 per cent tax rate on real gains for properties affected by the quarantine rules. Gains that accrued before 1 July 2027 remain under the old discount method.

New build residential properties that qualify for continued negative gearing also receive an election between the 50 per cent discount and indexation with the minimum rate. Your main residence exemption is unaffected.

For investors on lower marginal tax rates or receiving means-tested income support in the year of sale, the minimum rate may increase the effective tax on a property sale. It's worth modelling the sale outcome under both scenarios before committing to a purchase, particularly if you're planning a medium-term hold in an area like Craigieburn where growth has historically been moderate but steady.

When an Interest-Only Loan Still Makes Sense

Interest-only repayments keep your borrowing costs lower during the period you hold the property, which can help if you're relying on rental income to cover most of the loan servicing. Even without the ability to claim losses against salary, some Craigieburn investors still prefer interest-only terms for the first few years to preserve cash flow and redirect surplus income into other investments or offset accounts.

Lenders typically offer interest-only periods of up to five years on investment loans, after which the loan reverts to principal and interest. The serviceability test applies a buffer of three percentage points above the actual rate and assumes principal and interest repayment from the start, so you need to demonstrate you can afford the loan on a fully amortising basis regardless of the initial structure.

If you're holding multiple properties, an interest-only approach on one loan might improve overall portfolio cash flow, but it does not change the tax treatment of any loss under the new quarantine.

Portfolio Growth Under the New Tax Rules

Investors building a portfolio in areas like Craigieburn now need to account for the fact that losses on newer properties cannot offset gains elsewhere unless those gains also come from residential rental income or a future sale.

In our experience, buyers previously comfortable carrying one or two negatively geared properties are now reassessing whether they can sustain multiple properties without the annual tax refund. Cash flow becomes the binding constraint rather than tax planning.

If you already own a grandfathered property and are considering a second purchase, the new property's losses will be quarantined while the older property's losses remain deductible. That creates different cash flow profiles across your portfolio and may influence which property you choose to hold long-term and which you sell first.

Borrowing Capacity and Debt-to-Income Limits

From 1 February 2026, lenders can allocate no more than 20 per cent of new investor loans to borrowers with a debt-to-income ratio of six times or greater. The cap applies separately to investor and owner-occupier lending.

For a Craigieburn household earning a combined income of $120,000, a DTI of six would allow total debt of $720,000 across all loans, including any existing owner-occupier mortgage, car loans and investment debt. If you're already carrying significant debt, adding another investment property may push you above that threshold and into the restricted portion of a lender's allocation.

Rental income is included in serviceability calculations, but lenders typically apply a haircut of around 20 per cent to account for vacancy, maintenance and management costs. If you're buying in an area with historically low vacancy such as Craigieburn, that shading still applies.

What You Can Still Claim as a Deduction

Even under the new quarantine, the same expenses remain deductible against rental income. Loan interest, council rates, water charges, insurance, property management fees, repairs and maintenance, depreciation on plant and equipment, and body corporate fees all reduce your rental profit or increase your rental loss.

The difference is where that loss can be applied. If you have no other rental income and no capital gain in the same year, the loss is carried forward. You can accumulate losses over multiple years and apply them when you eventually sell the property or start earning net rental income from other properties.

Keep records of all claimable expenses and losses in each financial year. The ATO has indicated it will release further guidance on how quarantined losses are reported and carried forward, but the legislative framework is now in place.

Should You Still Buy in Craigieburn?

Craigieburn remains attractive to investors focused on long-term capital growth and stable tenant demand. The area benefits from proximity to employment hubs, established transport links, and ongoing residential development that supports local infrastructure and amenity.

The tax changes do not eliminate the fundamentals that drive property value over time. What they do change is the annual after-tax cost of holding a property during the accumulation phase, particularly if you're carrying a loss and cannot claim it against salary.

If you're an investor with existing equity, strong income and a long hold period, the new rules may influence your choice of property, loan structure and timing, but they do not necessarily rule out investment property finance in the area. If you were relying on negative gearing to make the numbers work in the short term, you may need to reconsider the deposit size, the loan amount, or the type of property you target.

One of our team can walk through how the changes apply to your specific circumstances and what loan options suit your goals. Call one of our team or book an appointment at a time that works for you.

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