If you owned an investment property before 7.30pm on 12 May 2026, you have probably been told you are “grandfathered” and can stop worrying about the negative gearing changes. That is mostly true. But in the conversations, we are having with clients, the questions have moved on from “am I affected?” to “what can I actually do with this property now?” The answer is more interesting than the headlines suggest.
First, what grandfathering does
The negative gearing reforms are now law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. From 1 July 2027, losses from established residential properties acquired after Budget night will only be deductible against rental income or capital gains from residential property, with unused losses carried forward. Properties held at the announcement, including where a contract had been signed but not yet settled, are grandfathered and remain eligible for negative gearing until they are sold. The same goes for a home you owned before Budget night that later becomes a rental.
So if your property was yours before 12 May, you can keep claiming rental losses against your salary for as long as you hold it. Nothing about your day-to-day ownership has to change.
What you can still do
This is the part that gets lost. Grandfathering attaches to the property, not to the loan. You can refinance, switch lenders, change from interest-only to principal-and-interest, or draw down equity for property improvements, and none of it disturbs grandfathering, provided the borrowings continue to relate to producing rental income from the property.
That last clause is the whole game. Borrow more against a grandfathered property to renovate that same property, and every dollar of the loan, old and new, stays tied to it, so the full interest bill remains deductible against your salary. A new kitchen, a second bathroom, a granny flat out the back: all fine. Lenders are treating it the same way, with refinances on grandfathered properties retaining negative gearing in serviceability at the lenders who have announced changes, and top-ups for property improvements remaining eligible.
Where it gets complicated
The trap is using a grandfathered property as the launchpad for the next one. Refinancing the grandfathered property does not affect its status, but a new investment property purchased with the released equity is a fresh acquisition subject to the new rules unless it qualifies as a new build.
That means the interest on the equity you pulled out cannot be claimed against your salary from 1 July 2027. It has to be quarantined to the new property’s rental income. And if the loan is not split cleanly, you can end up overclaiming without realising it. What matters is not that the loan is new, it is what the money actually funded, and refinancing is one of the first things an audit checks.
Three other things to know:
- The CGT changes are not grandfathered. The 50 per cent discount will be replaced with cost base indexation and a 30 per cent minimum tax on gains from 1 July 2027, and the CGT reforms apply to gains that accrue after that date. You keep the discount on growth up to 30 June 2027; growth after that is taxed under the new method.
- Transferring the property can end grandfathering. Transfers of ownership, including to a spouse, are likely to terminate grandfathered status, with the receiving spouse treated as a post-announcement purchaser. Restructuring for tax reasons could cost you the very thing you are trying to protect.
- Super funds have their own hard line. From 10 August 2026 SMSFs can no longer use limited recourse borrowing arrangements to buy residential property, though existing arrangements are grandfathered and LRBAs can still be used for business real property.
What this means for your borrowing
Even for grandfathered owners, the lending landscape has shifted. NAB, Macquarie, Great Southern Bank and ANZ have updated investor serviceability, and for a typical investor on the 37 per cent tax bracket the practical reduction in borrowing capacity is around 10 to 15 per cent, exceeding 20 per cent at higher brackets or with multiple properties. A pre-approval based on the old rules can fall over at settlement.
Whoever you use for your lending, these are the three questions worth asking them now:
- Is my debt structured so that each property’s borrowing can be identified on its own, or is it blended across a single facility?
- Does my current pre-approval reflect the serviceability calculations lenders are using since May, or the ones they used before?
- If I redraw or top up, how will the interest on the new money be treated, and does that match what I plan to spend it on?
If the answers are not clear, the structure needs a look before the next transaction, not after.
Before you act: a five-point check
Grandfathering is a real advantage, and if you got in before Budget night you should protect it. But it is an advantage that attaches to a property, not to your borrowing power in general. Before your next renovation, refinance or purchase, it is worth confirming:
- Your contract date is documented. Grandfathering depends on the binding contract date, not settlement. Keep the signed contract on file.
- Loans are split by property. Debt for different properties should sit in separate splits so the purpose of every dollar is clear.
- Redraw purpose is recorded. Any equity you release should have a paper trail showing what it funded.
- Renovation funding is tied to the property it improves. A top-up against the property being renovated keeps the deduction intact. A general redraw muddies the trail.
- Your pre-approval has been reviewed since May. If it predates the lender changes, it may not hold.
Most investors we speak to have four of the five in order. It is the fifth one that catches people out, and it is rarely the same one twice.
Written by Troy Schirmer, National Finance Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
Troy brings more than a decade of experience in banking and lending, having spent 11.5 years with NAB, including eight years as a Banker within NAB Health. He has supported clients across Victoria and nationally, helping finance the purchase of a wide range of businesses, from pharmacies and medical clinics to childcare centres and other commercial assets.
Highly experienced across business lending, home lending, and asset finance, Troy holds a Bachelor of Commerce with majors in Accounting and Finance, along with a Diploma of Financial Planning. He is known for his practical approach and ability to navigate complex lending structures with clarity and confidence.
Outside of work, Troy enjoys spending time with his family, travelling, watching just about any sport, and is a proud Essendon tragic – regardless of the score.