A couple of weeks on from the Federal Budget. Of all the budget announcements I can remember, this is easily the one that’s stirred up the most conversation and reaction. I’ve spent a good part of the last fortnight talking it through with clients, so I thought it’d be worth setting out what it currently means for borrowing capacity — particularly for those of you thinking about investing in property. Here’s where things actually stand:

The first thing I’d say is that the changes aren’t law yet. They’ve been announced, not legislated, and until that lands most lenders are holding their current serviceability settings. So in the day-to-day, not much has actually moved.

But it’s an evolving space, and a few lenders have started to move ahead of the legislation. NAB, Macquarie and Resimac are treating the removal as a foreseeable change and have begun adjusting how they handle negative gearing on new purchases. I’ve reached out to a number of the others, and the picture’s consistent: they’re watching the situation closely, but haven’t made any changes at this stage. And I’ll say it plainly: anything you already held before 7:30pm AEST on 12 May 2026 is grandfathered — the changes apply to new investment purchases, not the investment properties you already own. We’re watching which lenders have moved, and reviewing each client’s situation as it firms up.

What this actually does to borrowing capacity

Let me walk you through the mechanics quickly, because the bit that matters for borrowing isn’t the tax bill — it’s how a lender reads your income. When an investment property runs at a paper loss — the rent doesn’t quite cover the interest and costs — that loss reduces your taxable income. That’s negative gearing doing its job at tax time.

Here’s the part most people don’t see. When a lender assesses how much you can borrow, they take that gearing benefit and add it back as serviceable income. The reasoning is that the paper loss isn’t really cash out of your pocket once the tax position is accounted for — so they count it toward your borrowing capacity. That add-back makes a real difference to a lot of investor borrowing limits. Where a lender removes it — as NAB, Macquarie and Resimac have, on new purchases — the same person on the same salary can borrow materially less.

A simplified example shows it best — illustrative only, and it’s the impact at a lender that’s removed the add-back (so far, only a few have); same borrower, same actual income:

For example	Today	If removed
Salary	$100,000	$100,000
Property paper loss (negative gearing)	~$15,000	~$15,000
How the lender treats the gearing benefit	Added back as serviceable income	Add-back removed — assessed without it
Resulting borrowing capacity	Full capacity	~20–30% lower

Same income, materially lower borrowing power. To be clear, that’s the impact at the lenders that have made the change — right now only a few — so for most people looking at an investment purchase today, borrowing capacity hasn’t actually moved. But it’s the direction things are heading, and it’s the part that quietly decides whether a purchase stacks up. If one’s on your radar, it’s worth understanding before you commit — and worth knowing which lenders have moved and which haven’t, because that’s increasingly what decides where your file should go. None of this is personal advice, and none of it is a reason to rush.

What changed, in short

You’ll likely know the broad strokes already, so here’s the quick version of what was announced. Each one is from 1 July 2027 unless noted:

• Negative gearing — new builds only. From 1 July 2027, negative gearing on residential property applies to new builds. Established property bought after budget night gets ring-fenced instead: losses can offset other property income and carry forward, but not your wages.
• CGT discount replaced. For individuals, trusts and partnerships, the 50% capital gains discount is replaced with cost-base indexation and a 30% minimum tax rate. Growth before 1 July 2027 stays under the old rules.
• SMSFs and super carved out. Self-managed super funds, super and widely held trusts are explicitly excluded from both changes.
• Grandfathering. Anything held before 7:30pm AEST on 12 May 2026 is untouched. This is about new investment purchases, not the investment properties you already own.

Detail on the announcement is set out in the Budget tax reform papers and in Baker McKenzie’s summary of the CGT and negative-gearing measures.

What it means if you’ve got an SMSF or surplus super

Super is the part of this worth pausing on. Self-managed super funds, super and widely held trusts are explicitly excluded from both changes — the negative-gearing restriction and the CGT change. So the settings that apply inside super are staying as they are.

Two things follow from that. Inside super, the effective capital gains tax rate on a long-held asset stays at about 10%, against the new 30% minimum that applies outside super. And an SMSF can still deduct property losses against the fund’s other income, the way it does now. Put together, that means the relative position of property held inside an SMSF has shifted — including commercial property held under a limited recourse borrowing arrangement, which is already a common structure on our book.

If you’ve got an SMSF, or surplus super sitting there, this is worth building into your investment-property strategy for any future purchase. To be clear, this is a structuring conversation and general information only — not personal financial, tax or super advice, and there’s a fair bit that depends on your own circumstances. SMSF Adviser has set out the carve-out in more detail.

What it means if you’re looking at a new build

New builds are the category that keeps the current treatment. From 1 July 2027 the negative-gearing restriction applies to established property, not new builds — so on a new build you keep full negative gearing, and you keep the choice on capital gains tax of the existing 50% discount or the new indexation method, whichever gives the lower gain.

Here’s where it connects back to the borrowing-capacity point from earlier. That roughly 20–30% lower borrowing capacity applies to new investment purchases of established property — because that’s where the add-back gets removed. A new build keeps the current negative-gearing treatment, which means lenders keep adding the gearing benefit back as serviceable income. Same income, but on a new build you keep the borrowing capacity you’d have today.

For anyone weighing a future investment purchase, that makes new construction, off-the-plan and house-and-land worth building into your strategy now. One practical note: lenders with strong construction-to-permanent products matter more when you’re buying new, and which lender suits depends on your situation. William Buck’s negative-gearing summary sets out the new-build treatment.

Where this lands

Last thing, and it’s the important one: this is announced, not legislated. The grandfathering is locked — anything held before 7:30pm AEST on 12 May 2026 is untouched — but the detail of the new regime is still firming up as ATO guidance and the final legislation land, and the legislation is being fast-tracked. On the investment properties you already own, there’s nothing to do.

If you’re weighing an investment purchase in the current environment, it’s worth a conversation about your individual situation. Reach out via dan.peters@edgeviewfinance.com.au and we’ll arrange a call.

— Dan

This briefing summarises publicly announced policy. It is not financial or tax advice. Legislation is not yet passed — confirm final details with ATO guidance or tax counsel before acting.