Federal tax reforms that took effect in mid-2026 have changed how residential property investors claim interest deductions and calculate capital gains. If you are considering an investment property purchase in Harristown, the timing of your purchase and the type of property you select now directly affect your tax position for the life of the holding.
What the Negative Gearing Changes Mean for New Purchases
Established residential properties purchased after 12 May 2026 can no longer have their losses deducted against salary or wage income from the 2027-28 income year onward. Losses are now deductible only against other residential property income, including capital gains on residential properties, and can be carried forward indefinitely. Properties held at 12 May 2026 and eligible new builds purchased after that date remain fully deductible against all income.
Consider a Harristown investor who purchases an older unit on Keats Street in late 2026. If the property generates a $6,000 annual loss after interest and other holding costs, that loss can only offset income from other residential investments, not salary. The same investor purchasing a newly constructed townhouse on vacant land in the same precinct would retain full deductibility against all income sources.
How Capital Gains Tax Now Splits Between Two Regimes
Gains accruing before 1 July 2027 continue to attract the existing 50 per cent discount for assets held longer than 12 months. Gains accruing from 1 July 2027 onward use cost base indexation tied to CPI and are subject to a 30 per cent minimum tax rate on the indexed gain. The split applies to any property sold after 1 July 2027 that was owned before that date.
You can either obtain a market valuation as at 1 July 2027 or apply an ATO apportionment formula to separate the pre-2027 and post-2027 components of the gain. Eligible new builds retain the option to choose between the old 50 per cent discount and the new indexation system at the time of sale, depending on which delivers the lower tax outcome.
Structuring an Investment Loan Under the DTI Lending Limit
From 1 February 2026, banks and other authorised deposit-taking institutions can lend only 20 per cent of their quarterly investment loan volume to borrowers with a debt-to-income ratio of six times or higher. The limit applies separately to investor and owner-occupier portfolios and affects new lending only.
If your total borrowings across all purposes, including an existing home loan, reach six times your gross household income, some lenders will decline the application regardless of your serviceability or deposit. Others will approve within their quarterly allocation, but those spots are finite. The debt-to-income calculation includes all credit limits and outstanding balances, not just mortgage debt.
Harristown is adjacent to the University of Southern Queensland Toowoomba campus and attracts consistent student rental demand, particularly for standalone houses and units within walking distance of transport routes along West Street and Greenwattle Street. Rental income does not increase your income for DTI purposes under the current framework, but it is counted in the serviceability assessment.
Choosing Between Variable and Fixed Rates in a Reformed Tax Environment
Variable rates on investment loans generally sit between 0.3 and 0.7 percentage points higher than comparable owner-occupier rates. Fixed rates for investors carry a similar margin. Interest-only periods are available from most lenders but typically require an LVR below 90 per cent for new investment lending.
Rate structure affects repayment timing but does not change the deductibility treatment of the interest itself. All interest on borrowings used to acquire or hold a rental property remains deductible to the extent the property is rented or genuinely available for rent, regardless of whether the loan is variable, fixed, interest-only or principal-and-interest.
For a Harristown property purchased before 12 May 2026, the interest deduction continues to offset all income. For an established property purchased after that date, the interest deduction offsets residential property income only from the 2027-28 income year. The loan product itself does not alter that tax outcome.
Why Eligible New Builds Retain Full Deductibility
New builds are defined as dwellings constructed on previously vacant land or developments that increase the number of dwellings on a site. A knock-down rebuild that replaces one house with one house does not qualify. A knock-down rebuild that replaces one house with two townhouses does qualify. A new build occupied for more than 12 months before sale to a subsequent investor loses the exemption for that next purchaser.
Harristown has seen infill development along Wright Street and in parts of the suburb closer to the CBD, with older homes replaced by duplex and triplex configurations. These developments, if purchased before first occupancy or within 12 months of first occupancy, retain full negative gearing treatment and allow the investor to choose between the old CGT discount and the new indexed system at sale.
Serviceability Assessment Under the Three Percentage Point Buffer
All banks assess your capacity to service an investment loan at a rate at least three percentage points above the actual loan rate. If the lender offers you a variable rate at 6.5 per cent, serviceability is tested at 9.5 per cent or higher. The buffer applies to new borrowers only and has been set at three percentage points since October 2021.
Rental income is included in the serviceability calculation, but lenders generally apply a reduction to account for vacancy and management costs. Reductions vary between 20 and 30 per cent depending on the lender and the property location. Some lenders reference local vacancy rates published by the Real Estate Institute of Queensland. Harristown's proximity to university and hospital precincts supports lower vacancy assumptions compared to more remote regional locations.
When LMI is Required and How It Affects Borrowing Capacity
Lenders mortgage insurance is generally required on investment loans where the LVR exceeds 80 per cent. The premium is calculated on a sliding scale based on loan amount and LVR, and is paid by the borrower, usually capitalised into the loan amount. Some lenders cap investment LVRs at 90 or 95 per cent depending on their appetite and the borrower's financial position.
LMI premiums are not deductible as a borrowing expense in the year incurred. The premium must be amortised over the shorter of five years or the loan term. State stamp duty may also apply to the premium depending on where the property is located. Capitalising the LMI premium into the loan increases the loan amount but does not change the LVR calculation, which is based on the property's valuation.
Maximising Deductible Expenses Within the New Framework
Council rates, insurance, property management fees, repairs, depreciation on fixtures and fittings, and body corporate fees for units remain fully deductible for the period the property is rented or genuinely available for rent. Deductibility is not affected by the negative gearing reforms. The reforms only change where the deduction can be applied, not whether the expense is deductible.
If you own an established investment property purchased after 12 May 2026, all holding costs remain claimable, but the net loss can only offset residential property income from the 2027-28 income year. If you hold multiple residential investments, losses from one property offset income from another within the same income year. Unused losses carry forward to future years and can offset residential property income or capital gains in those years.
Golden Triangle Finance Group works with property investors in Harristown and across the Toowoomba region to structure investment loans that align with both the reformed tax environment and the borrower's long-term portfolio strategy. Loan structure, deposit size, and property selection now carry different tax outcomes depending on purchase date and property type. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I still negatively gear an investment property purchased in Harristown after May 2026?
Yes, but losses on established properties purchased after 12 May 2026 can only be deducted against other residential property income from the 2027-28 income year onward, not against salary or wages. Eligible new builds purchased after that date retain full deductibility against all income.
How does the debt-to-income lending limit affect investment loan applications?
From 1 February 2026, banks can lend only 20 per cent of their quarterly investment loan volume to borrowers with total debt of six times gross income or higher. If your total borrowings reach that threshold, some lenders will decline regardless of serviceability.
What qualifies as an eligible new build for negative gearing purposes?
Dwellings constructed on previously vacant land or developments that increase the number of dwellings on a site qualify. A new build occupied for more than 12 months before sale to a subsequent investor loses the exemption for that next purchaser.
How is capital gains tax calculated on properties sold after 1 July 2027?
Gains accruing before 1 July 2027 use the existing 50 per cent discount. Gains accruing after that date use cost base indexation and a 30 per cent minimum tax rate on indexed gains. You can obtain a market valuation or apply an ATO apportionment formula to split the two components.
Does rental income count toward my income for the debt-to-income limit?
No, rental income does not increase your income for DTI purposes under the current framework. However, it is included in the lender's serviceability assessment, usually with a reduction applied to account for vacancy and management costs.
