Tax shifts on July 1: How the 2026 Federal Budget rewrites investor serviceability

From July 1, 2026, negative gearing deductions will be capped at $10,000 per year, while the capital gains tax discount for assets held over 12 months drops from 50% to 25%¹. This structural change creates an immediate deadline for your clients to settle pending purchases and forces a reassessment of long-term holding strategies. Expect lender serviceability models to tighten as they strip out the tax-shielded income that historically inflated borrowing capacity—a shift that makes staying ahead of the May 2026 RBA Rate Hike: Serviceability, Self-Employed Clients, and the Refinance Cliff more critical than ever.

The arithmetic of the new tax reality

The math for investor loans changes overnight. Take a client buying a $600,000 dwelling with an expected $12,000 annual rental loss. Currently, they offset that loss against personal income at a 37% marginal rate, grabbing a $4,440 tax benefit. After July 1, the $10,000 cap restricts their claim, leaving them with $2,000 of unshielded loss.¹ That single change knocks their disposable income down by $740 annually. Depending on the lender’s buffer, that slices $25,000 to $30,000 off their maximum borrowing capacity.

Then there is the CGT change. Moving from a 50% to a 25% discount fundamentally alters the exit strategy for property investors. For an asset with a $300,000 gain, the tax bill doubles for high-earning investors. Credit teams are already adjusting their risk appetite accordingly. If you rely on generic online calculators that haven't been updated for the 2026 tax environment, you are submitting files that risk an automatic decline. Stop guessing. If the software isn't built for these specific 2026 caps, drop it before it burns your client's application.

Grandfathering and the refinance risk

Existing properties settled before July 1 are grandfathered under the legacy tax regime. Don't assume this is a permanent shield. Clients who refinance to chase a lower rate after the cut-off date risk triggering a credit review that could reclassify their holdings under the new rules. The protection attaches to the property acquisition date, not the mortgage product itself. My advice? Tell clients to avoid full-scale refinances if they can achieve their goals through a simple product switch or rate negotiation with their current lender. Moving a loan between lenders post-July 1 creates a dangerous, unnecessary exposure to the new tax reality. Most clients do not appreciate the risk they take when they move a mortgage just to save a few basis points on interest. Explain the trade-off clearly: a slightly better rate now isn't worth the loss of grandfathered tax status that will haunt them for the next decade. If they must move, ensure they understand that the new credit assessment will strip away their legacy protection immediately.

Strategy shifts for high-LVR portfolios

Investors with high-LVR portfolios are most at risk of hitting a serviceability wall. If a client currently counts on large negative gearing losses to support a multi-property portfolio, the $10,000 cap forces an urgent re-evaluation of their debt-to-income ratio. We expect a flight to new construction, as the government is clearly incentivising supply through favourable tax treatment. Clients currently in the market for established dwellings need to settle by June 30 to lock in current tax benefits. Suggest a portfolio audit for your top investors immediately. If they cannot sustain the new tax burden, the strategy needs to pivot toward higher-yielding assets or debt reduction before their next review cycle. Don't wait for the lender to flag a serviceability issue. If their gearing strategy fails the new math, look at their rental yields. If the yield is too low to cover the gap left by the $10,000 cap, it’s time to talk about selling off the underperformers.

Managing the serviceability gap

Budget forecasts show GDP growth tracking 0.4% above RBA estimates with unemployment peaking at 4.5%.² It is a resilient but expensive housing market. Your job is to translate these macroeconomic signals into individual client outcomes. When a client's borrowing capacity drops by 10% due to tax changes, they look to you for a solution. Be prepared to discuss alternative loan products, such as moving to interest-only repayments or adjusting the entity structure to manage the impact of the new $10,000 cap. Do not wait for the lender to notify you of a serviceability shortfall. Proactive portfolio management is the only way to retain these clients through the transition. If you are not modeling these scenarios today, you will be left scrambling in July. Use the RBA's current stance on monetary policy to justify your caution.³ Clients need to see the numbers in black and white to understand why their borrowing power is shrinking.

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FAQs

Are existing property portfolios affected by the new tax caps? No. Properties purchased and settled before July 1, 2026, retain their grandfathered tax status. This status may be compromised if the loan is significantly restructured or refinanced with a new lender after the deadline.

How much will borrowing capacity drop on average? Estimates suggest a 5% to 15% reduction in borrowing power for investors. The exact figure depends on the client’s marginal tax rate and the size of their total rental losses relative to the new $10,000 limit.

Should I advise clients to rush settlements before June 30? Yes. For any investor purchase currently in the pipeline, ensuring settlement occurs before the July 1 deadline is the only way to guarantee they remain under the legacy tax regime. Any delay risks a significant increase in their long-term tax liability.

What to do next

Filter your CRM for all investor clients with active pre-approvals or recent purchases. Run their current serviceability against the $10,000 cap and 25% CGT discount to see who will lose borrowing capacity on July 1. Reach out to those impacted before they receive a decline notification from a lender.

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Related reading

• May 2026 RBA Rate Hike: Serviceability, Self-Employed Clients, and the Refinance Cliff
• When the builder folds: protecting your clients in a high-insolvency market
• Your database is hiding a 15% revenue surge. Here is how to find it.

Sources

Footnotes

1. https://www.macrobusiness.com.au/2026/05/chicken-chalmers-embeds-property-class-war/ , Chicken Chalmers embeds property class war ↩ ↩²

2. https://www.macrobusiness.com.au/2026/05/budget-and-rba-outlook-for-different-countries/ , Budget and RBA outlook for different countries ↩

3. https://www.rba.gov.au/statistics/cash-rate/ , Reserve Bank of Australia , Cash Rate Target ↩