Federal tax reform changes the financial structure of investment property from July 2027. If you are considering an investment property in San Remo or across Bass Coast, the way interest costs and capital gains are taxed will differ sharply depending on when you buy and what type of dwelling you acquire.
Negative Gearing Quarantine From July 2027
Net rental losses on residential investment properties acquired from mid-May 2026 will no longer offset salary or business income from mid-2027. Those losses can only be carried forward to offset future rental income or capital gains on residential property. The rule applies to established dwellings acquired after 7:30pm AEST on 12 May 2026.
Consider an investor who purchases an established cottage near the San Remo foreshore in late 2026 with an investment loan of $450,000 at a variable rate. Annual interest costs might reach $24,000, while rental income sits at $18,000 after agent fees and body corporate. Under the previous system, the $6,000 shortfall reduced taxable income from employment. Under the new regime, that $6,000 loss is banked and only usable against future rental income or when the property is eventually sold. Cashflow remains unchanged, but the timing of tax relief shifts years into the future.
Properties held before that May 2026 cut-off continue under existing negative gearing rules until sold. If you already own an investment property in San Remo or signed a contract before the announcement, your loan structure and tax treatment remain unaffected by the quarantine.
Eligible New Builds Retain Full Negative Gearing
Dwellings constructed on previously vacant land, or developments that increase the total number of dwellings on a site, retain unrestricted negative gearing indefinitely. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. A knock-down rebuild that replaces one dwelling with two townhouses does.
In San Remo, supply of vacant residential land is limited. Most new dwelling construction involves subdivision of larger blocks or redevelopment of older homes into dual-occupancy sites. If you are financing construction or purchasing a newly completed dwelling that meets the definition, your investment loan interest remains fully deductible against all income, and the 50 per cent CGT discount continues to apply when you sell.
A new build occupied for more than 12 months before being sold to a subsequent investor loses that preferential treatment for the next owner. Timing matters if you are buying a property marketed as a new build.
Capital Gains Tax Indexation Replaces the 50 Per Cent Discount
From July 2027, the 50 per cent CGT discount for individuals is replaced by cost base indexation using the Consumer Price Index, and a minimum 30 per cent tax rate applies to real gains. The transition applies only to gains accrued after that date. Gains made before July 2027 on properties you already own continue under the 50 per cent discount.
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In practical terms, if you purchase an established investment property in San Remo now and sell it in a decade, the capital gain is split. The portion of gain up to June 2027 receives the 50 per cent discount. The portion after June 2027 is indexed for inflation and taxed at a minimum 30 per cent rate. Eligible new builds allow investors to elect between the two treatments, providing flexibility depending on inflation and individual tax circumstances.
The minimum 30 per cent rate does not apply to investors receiving means-tested income support payments in the year they sell.
How Lenders Assess Investment Loan Serviceability Under DTI Caps
From February 2026, lenders operating under APRA supervision 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 is separate from the owner-occupier DTI cap and applies across the lender's entire investor book on a rolling basis.
For a San Remo investor earning $90,000 annually, total debt across all loans cannot exceed $540,000 if the lender has already reached its DTI cap allocation. If you hold an existing home loan of $350,000 and seek a $250,000 investment loan, your combined debt of $600,000 places you above the threshold unless the lender has capacity within its 20 per cent allocation.
The borrowing capacity calculation also includes a three percentage point serviceability buffer above the loan's interest rate. Lenders assess whether you can service the loan at the product rate plus three per cent, regardless of whether you choose a variable or fixed rate. Rental income is included but typically shaded by 20 per cent to account for vacancy and maintenance.
Interest-Only Versus Principal-and-Interest for Investment Property Finance
Interest-only periods allow investors to maximise deductible interest and preserve cashflow, but lenders have tightened criteria since mid-2024. Most investment loan products now offer interest-only terms of up to five years, after which the loan reverts to principal and interest unless you apply to extend.
An interest-only structure suits scenarios where capital growth is the priority and the investor plans to sell or refinance before the principal-and-interest reversion. In San Remo, where holiday rental income can fluctuate with seasonal demand, an interest-only loan provides breathing room during lower-occupancy months. Once the loan reverts, repayments increase sharply because the principal must be repaid over the remaining term.
If your investment strategy involves building equity and paying down debt over time, principal-and-interest repayments from the outset reduce the total interest cost and build a buffer for future refinancing or portfolio growth.
Fixed Rate or Variable Rate for Investment Loans in a Changing Tax Environment
Variable rates allow investors to make extra repayments and access offset accounts without penalty. Fixed rates provide certainty over interest costs, which is valuable when budgeting for negatively geared cashflow or managing multiple investment properties. Most lenders offer fixed terms from one to five years for investment loans.
In San Remo, where property is often used for short-term holiday letting outside peak summer months, an offset account linked to a variable rate investment loan allows surplus rental income to reduce interest charges without being locked away. Fixed rates remove that flexibility but lock in the interest cost, which can be useful if your marginal tax rate is high and you want to forecast deductions accurately.
Split loan structures combine fixed and variable portions on a single property, but they add complexity when calculating claimable expenses if the fixed and variable portions are drawn down or repaid unevenly.
Equity Release and Portfolio Growth Under New Lending Settings
Investors who own property in San Remo and wish to leverage equity for a second investment property face tighter serviceability and DTI constraints than in previous years. Lenders assess the combined debt across your portfolio and apply the serviceability buffer to each loan. Rental income from the existing property is included but shaded, and any net rental loss reduces your assessed income.
If you purchased in San Remo several years ago and the property has appreciated, releasing equity requires a refinance or a top-up on the existing loan. The released funds can be used as a deposit for the next property, but the interest on the additional borrowing is only deductible if the funds are used to acquire or improve an income-producing asset. Funds used for private purposes, even if secured against an investment property, do not generate a deductible interest expense.
A loan health check before pursuing portfolio growth clarifies how much equity is accessible and whether your current loan structure supports further borrowing without triggering Lenders Mortgage Insurance on the new purchase.
Stamp Duty and Settlement Costs for San Remo Investment Property
Stamp duty in Victoria is calculated on a sliding scale and is higher for investment property than for owner-occupied property in some states, though Victoria does not apply a specific investor surcharge beyond the standard rates. For an investment property purchase in San Remo, stamp duty and settlement costs including conveyancing and lender fees typically add several thousand dollars to the upfront cost.
Those costs are not deductible in the year incurred. Stamp duty forms part of the property's cost base for CGT purposes, and legal fees directly related to the purchase are also added to the cost base. Ongoing costs such as loan establishment fees can be deducted over five years or the term of the loan, whichever is shorter.
What This Means for San Remo Property Investors From Mid-2027
If you are purchasing an established dwelling in San Remo now, your investment loan interest will be quarantined from July 2027 unless the property was acquired before mid-May 2026. Cashflow is unchanged, but the tax benefit is deferred. If you are purchasing or building a qualifying new dwelling, full negative gearing and a choice between CGT treatments remain available.
Loan structure, deposit size, and rental yield all interact with the new tax settings. An investor stretched to the DTI cap with a high loan-to-value ratio on an established property will carry a larger deferred loss and less flexibility than an investor with a lower LVR and stronger rental yield. The federal changes reward new housing supply and penalise speculative investment in established stock.
Call one of our team or book an appointment at a time that works for you. We work with investors across San Remo, Coronet Bay, and Bass Coast to structure investment loan options that align with your tax position and portfolio strategy under the current framework.
Frequently Asked Questions
Does negative gearing still apply to investment properties purchased in San Remo now?
Properties acquired after mid-May 2026 will have rental losses quarantined from July 2027, meaning losses can only offset future rental income or capital gains, not salary or other income. Properties held before that date continue under existing negative gearing rules until sold.
What counts as an eligible new build for unrestricted negative gearing?
Dwellings constructed on previously vacant land or developments that increase the total number of dwellings on a site qualify. Knock-down rebuilds that do not increase dwelling numbers do not qualify, even if the property is newly constructed.
How does the debt-to-income cap affect investment loan approval?
APRA-regulated lenders can allocate no more than 20 per cent of new investor loans to borrowers with total debt exceeding six times their income. If you are above that threshold, approval depends on whether the lender has capacity within its allocation.
Should I choose a fixed or variable rate for an investment loan in San Remo?
Variable rates offer offset accounts and repayment flexibility, useful if rental income fluctuates. Fixed rates lock in interest costs, which helps forecast tax deductions, but remove flexibility during the fixed term.
How does the new CGT indexation work for investment properties?
From July 2027, the 50 per cent CGT discount is replaced by cost base indexation and a minimum 30 per cent tax rate on real gains for established dwellings. Gains accrued before July 2027 remain under the old rules, and eligible new builds allow investors to elect between the two treatments.
