Real Numbers: After‑Tax Cashflow on Investment Loans Before and After Reforms

For most investors, after‑tax cashflow on an investment loan will be weaker after the 2026–27 negative gearing reforms, especially for established properties bought after 12 May 2026 that won’t be able to offset rental losses against salary from 1 July 2027. You need to model pre‑ and post‑reform cashflow before you buy, restructure or sell.

Here’s the quick rule of thumb:

If your investment was relying on a big tax refund to feel affordable, assume that refund shrinks or disappears under the new rules and check whether the property still works on its own numbers.

Tax reforms change after‑tax cashflow even when rent and interest stay the same.

Example 1: Negatively geared unit – before vs after reforms

Assumptions (illustrative only):

• Purchase price: $800,000 established unit (settles July 2026)
• Loan: $720,000 interest‑only, 6.5% p.a.
• Gross rent: $750 per week = $39,000 p.a.
• Non‑finance costs (rates, strata, insurance, maintenance, management): $12,000 p.a.
• Depreciation and capital allowances: $4,000 p.a.
• Investor on marginal tax rate ~37% + Medicare (assume 39%).

Step 1: Pre‑tax cashflow

• Interest: 6.5% × $720,000 = $46,800
• Non‑finance costs: $12,000

Cashflow before tax and depreciation:

• Rent: $39,000
• Less interest and cash expenses: $46,800 + $12,000 = $58,800
• Pre‑tax cashflow (actual dollars): -$19,800 p.a.

This is the real out‑of‑pocket cost before tax and non‑cash deductions.

Step 2: Tax position under current rules

For tax, you also deduct depreciation:

• Deductible expenses for tax: $58,800 + $4,000 = $62,800
• Taxable rental loss: $39,000 − $62,800 = -$23,800

At a 39% marginal rate:

• Tax saving from negative gearing: 39% × $23,800 ≈ $9,282

After‑tax cashflow:

• Pre‑tax cashflow: -$19,800
• Plus tax saving: +$9,282
• After‑tax cashflow (current rules): about -$10,500 p.a. (~-$200 per week)

The investor is still cashflow negative, but the tax refund softens the blow.

Step 3: Tax position after reforms (loss quarantined)

Under the reforms (per the 2026–27 Budget and the Tax Reform No.1 Bill), many established residential properties bought after 12 May 2026 will have rental losses quarantined. In simple terms, you can’t use the loss to reduce your salary; it can usually only offset future rental income or gains from that property.

Mechanically, your pre‑tax cashflow stays exactly the same:

• Still -$19,800 p.a. out of pocket.

But now, the loss no longer produces a $9,282 refund against your wages.

So:

• After‑tax cashflow (loss quarantined): about -$19,800 p.a. (~-$380 per week)

That’s almost $180 per week worse purely from the tax rule change, with the same rent, rate and expenses.