Interest on an investment loan used to acquire or hold a rental property is deductible against assessable income to the extent the property is rented or genuinely available for rent.
For Waterford investors, the proximity to Logan Hyperdome and the M1 motorway makes the suburb appealing to tenants, but tax treatment now depends on when you bought and what type of property you own. Legislative changes that took effect in mid-2026 mean established properties purchased after 12 May 2026 face different rules from 1 July 2027 onwards. If you held your Waterford property at that date, or you bought a qualifying new build after that date, the existing rules continue to apply.
How Interest Deductions Work on Rental Property Loans
You can deduct interest on borrowings used to acquire or hold an investment property where that property produces assessable income. The deduction applies for each period the property is rented or genuinely available for rent. Interest on borrowings used for private purposes is not deductible, even if the loan is secured against the investment property. If you refinance to release equity for personal use, only the portion of interest attributable to the investment remains deductible.
Consider an investor who purchased a three-bedroom Waterford unit in early 2025 and rented it to a family working in the nearby Logan employment precinct. The loan was interest-only at the time. All interest paid during the rental period is deductible against the investor's salary and any other income, because the property was held before the 12 May 2026 cut-off and continues to be rented.
What Negative Gearing Means and When It Still Applies
Negative gearing occurs when the total deductible expenses on a rental property, including loan interest, exceed the rental income. Under the previous rules, that loss could be offset against salary, business income or any other assessable income in the same financial year.
Properties held at 7:30pm AEST on 12 May 2026, or under contract awaiting settlement at that time, remain fully negatively geared until sold. Qualifying new builds purchased after that date also retain full negative gearing. For established properties acquired after 12 May 2026, losses from the 2027-28 income year onwards are deductible only against income from other residential properties, including capital gains on residential property sales. Excess losses carry forward to offset residential property income in future years.
In our experience, this change affects investors who were planning to acquire multiple established properties over time and offset early-stage losses against employment income. The deduction is not lost, but it is quarantined until you have residential property income to absorb it.
New Build Properties and the Exemption
A new build is eligible for the negative gearing exemption if it was constructed on previously vacant land or replaced an existing dwelling where the total number of dwellings increased. A knock-down rebuild that does not increase dwelling numbers does not qualify, nor does a substantial renovation. A new build that has been occupied for more than 12 months before sale to a subsequent investor loses the exemption for that subsequent purchaser.
Waterford has limited vacant land, but there are occasional knock-down rebuild opportunities on larger blocks near the Waterford Plaza precinct. Only those that result in multiple dwellings on a single title or genuine new construction on vacant land qualify under the exemption.
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Other Deductible Expenses Beyond Interest
Ongoing holding costs are deductible for the period the property is rented or genuinely available for rent. These include council rates, building and contents insurance, property management fees, body corporate fees for units, repairs and maintenance, and depreciation on plant and equipment and building capital works. Costs incurred while the property is vacant and not genuinely available for rent are generally not deductible.
Loan establishment fees and LMI premiums paid on an investment loan are deductible over five years or the term of the loan, whichever is shorter. Stamp duty on the property purchase is not deductible as an expense but forms part of the cost base for capital gains tax purposes.
Capital Gains Tax Changes from 1 July 2027
For capital gains accruing before 1 July 2027, the existing 50 per cent discount applies to individuals, trusts and partnerships who have held the asset for more than 12 months. From 1 July 2027, the discount is replaced by cost base indexation using the Consumer Price Index and a 30 per cent minimum tax rate on real gains accruing from that date.
For properties owned before 1 July 2027 and sold after that date, gains are taxed under the old rules for the portion accruing before 1 July 2027 and the new rules for the portion accruing after that date. You may obtain a market valuation as at 1 July 2027 or apply an apportionment formula published by the ATO. Investors in eligible new builds can choose between the old 50 per cent discount and the new indexation and minimum tax treatment at the time of disposal.
Recipients of the Age Pension, Disability Support Pension, parental leave pay or JobSeeker are exempt from the 30 per cent minimum rate in any financial year they receive such a payment.
Structuring Loans to Preserve Deductibility
Deductibility depends on the purpose of the borrowing, not the security. If you refinance an investment loan to release equity for a private purpose such as a holiday or car, the interest attributable to that private component is not deductible. If you release equity to fund a deposit on another investment property, the interest on that component remains deductible because the purpose is income-producing.
Keeping separate loan splits or accounts for different purposes preserves clarity at tax time and during any ATO review. Many investment loan products allow multiple splits under a single facility, each with its own balance and purpose.
Interest-Only Versus Principal and Interest Repayments
An interest-only loan structure maximises your annual interest deduction in the early years and preserves cash flow, which can be redirected to other investments or offset accounts on non-deductible debt such as an owner-occupied home loan. Principal repayments are not deductible, so paying down an investment loan reduces the size of your annual deduction unless your rental income increases proportionally.
Interest-only periods are typically approved for five years at a time and can be extended subject to serviceability and lender policy. Under APRA's Prudential Standard APS 112, a loan with an interest-only period exceeding five years and an LVR above 80 per cent is classified as non-standard, which may attract higher capital requirements and affect pricing.
What Investors in Waterford Should Consider Now
Waterford's rental market benefits from its established schools, proximity to Logan Hospital and direct access to the Gateway Motorway, which attracts a mix of young families and essential workers. Vacancy rates in the broader Logan area have remained low, supporting consistent rental income.
If you are considering an established property purchase in Waterford, the negative gearing quarantine from the 2027-28 income year means you need sufficient residential property income to absorb losses, or you need to plan for those losses to be carried forward. If you already hold a Waterford property purchased before 12 May 2026, your existing negative gearing treatment is preserved until you sell.
For investors planning to expand a portfolio, timing and property type now carry different tax consequences. Seeking advice on loan structure, deposit size and holding strategy before proceeding with a purchase allows you to align borrowing with the current legislative settings and your broader financial position.
Call one of our team or book an appointment at a time that works for you. Wagstaff Finance works with property investors across Waterford and the surrounding Logan region to structure investment loans that align with your tax position and long-term strategy.
Frequently Asked Questions
Can I still claim investment loan interest as a tax deduction?
Yes, interest on borrowings used to acquire or hold a rental property is deductible to the extent the property is rented or genuinely available for rent. The deduction applies regardless of when you purchased, but how you offset losses depends on the purchase date and property type.
What is negative gearing and does it still apply?
Negative gearing occurs when deductible expenses exceed rental income. Properties held at 12 May 2026 or qualifying new builds retain full negative gearing. Established properties purchased after that date can only offset losses against other residential property income from the 2027-28 income year onwards.
Are other expenses besides loan interest deductible?
Yes, council rates, insurance, property management fees, body corporate fees, repairs, maintenance and depreciation are deductible for the period the property is rented or genuinely available for rent. Loan establishment fees and LMI premiums are deductible over five years or the loan term, whichever is shorter.
How do the capital gains tax changes affect investment property sales?
For gains accruing before 1 July 2027, the 50 per cent CGT discount applies. From 1 July 2027, gains are indexed for inflation and taxed at a minimum 30 per cent rate. Properties sold after 1 July 2027 are taxed under both rules depending on when the gain accrued.
Does refinancing affect my investment loan deductibility?
Deductibility depends on the purpose of the borrowing, not the security. If you refinance to release equity for a private purpose, the interest on that portion is not deductible. If you refinance to fund another investment, the interest remains deductible.
