Established Property in Australia: The Tax Advantages That Remain — And the Reform That Changes Everything

## The Window Is Narrowing — But It Is Still Open For years, the standard advice pointed Australian property investors toward new builds: full depreciation schedules, developer incentives, and state stamp duty concessions. Established property — the terrace, the apartment, the suburban brick veneer — was positioned as the less tax-efficient choice. That framing has always been incomplete. And following the 2026 Federal Budget, it is about to shift. On 12 May 2026, the Albanese Government announced it would limit negative gearing to new residential builds and replace the 50 per cent capital gains tax discount — effective 1 July 2027, subject to the passage of the *Treasury Laws Amendment (Tax Reform No. 1) Bill 2026*. The measure is not yet law. What that announcement created — unintentionally — is a defined category of property with entrenched tax rights: established dwellings purchased before 7:30pm AEST on 12 May 2026. According to the Australian Taxation Office, those properties are exempt from the negative gearing changes. The CGT reforms apply only to gains accruing after 1 July 2027. For investors who already hold established property, the calculus has improved significantly. For those considering a purchase now, the analysis is more nuanced. --- ## What Negative Gearing Means — and What Changes Negative gearing occurs when the costs of holding a rental property exceed its rental income. Under current ATO rules, that net loss can be offset against other forms of taxable income — salary, business income, investment returns — reducing the investor's overall tax liability. According to the ATO's 2026 Budget announcement, from 1 July 2027, losses from established residential investment properties purchased *after* 12 May 2026 will only be deductible against income from other residential properties, including capital gains. Investors will no longer be able to carry those losses against salary income in the way they currently can. Properties held before the announcement date retain full negative gearing rights indefinitely. The dollar value of that carve-out depends on the investor's marginal tax rate. Following the *Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024*, which commenced on 1 July 2024, the 37 per cent marginal rate applies to taxable income between \$135,001 and \$190,000. For an investor on \$150,000 with a \$20,000 annual rental loss, negative gearing currently generates a \$7,400 annual tax saving at that rate. --- ## The Capital Gains Tax Transition The proposed CGT reform replaces the 50 per cent discount — available under section 115-A of the ITAA 1997 to Australian residents holding an asset for more than 12 months — with cost-base indexation and a 30 per cent minimum tax rate on capital gains. Critically, the reform only applies to gains *accruing after* 1 July 2027. An investor who purchased in 2018 and sells in 2029 will calculate their gain across two periods: the portion accruing before 1 July 2027 attracts the current 50 per cent discount; only the post-July 2027 component falls under the new regime. This creates a defined incentive for holders of established property: the decision to sell before or after 30 June 2027 carries real monetary consequences. An investor approaching a sale should seek advice from a registered tax agent on timing. --- ## Depreciation: What You Can and Cannot Claim on Established Property Established property is often dismissed as depreciation-poor. The analysis is more layered than that framing suggests. ### Division 43 — Building Allowance Under Division 43 of the ITAA 1997, investors can claim 2.5 per cent per year on the original construction cost of any residential building constructed after 15 September 1987. This applies to established properties, not just new ones. On a building with an original construction cost of \$400,000, that represents a \$10,000 annual non-cash deduction, claimable for 40 years from the date of construction. A quantity surveyor report — typically \$600–\$900, from a firm accredited with the Australian Institute of Quantity Surveyors (AIQS) — is required to substantiate the original construction cost where documentation is unavailable. ### Division 40 — Plant and Equipment (The 2017 Restriction) From 1 July 2017, following the *Treasury Laws Amendment (Fair Taxation of Work-Related Expenses) Act 2017*, plant and equipment deductions on second-hand residential property are restricted. Investors can only claim depreciation on items they personally install or replace — not on pre-existing carpet, blinds, appliances, or air conditioning units. According to ATO Tax Ruling TR 2024/3, effective lives for common assets range from 10 years (carpet) to 20 years (hot water systems) under the prime cost method. New installations in an established property remain fully deductible. An investor who replaces carpet and installs a split-system air conditioner can depreciate both items under Division 40 from the date of installation. --- ## SMSF: Established Property Inside Superannuation According to the Australian Taxation Office, there were over 653,000 self-managed super funds (SMSFs) at 31 December 2025, holding more than \$1 trillion in combined assets. According to ASIC Moneysmart guidance, approximately 17.5 per cent of SMSF assets are held in residential and commercial property. An SMSF can acquire established residential property, subject to three conditions set out in the ATO SMSF investment restrictions guidance: 1. The property must satisfy the **sole purpose test** — held exclusively to provide retirement benefits to fund members. 2. It must not be acquired from a **related party** of any fund member, including relatives and business partners. 3. It must not be occupied or rented by a fund member or any related party. SMSFs can borrow to purchase property via a Limited Recourse Borrowing Arrangement (LRBA). Under an LRBA, the asset is held in a separate custodian trust until the loan is repaid, limiting the fund exposure to the value of that single asset. Within the superannuation environment, rental income is taxed at 15 per cent in accumulation phase and zero in pension phase. Capital gains on assets held more than 12 months attract a one-third discount within super — an effective CGT rate of 10 per cent in accumulation phase. The negative gearing reforms announced in the 2026 Budget do not apply within superannuation, which operates under separate provisions of the ITAA 1997. --- ## Debt Recycling: Converting Non-Deductible Debt Debt recycling converts non-deductible owner-occupied mortgage debt into tax-deductible investment debt. The mechanism: pay down the principal of a home loan, then redraw an equivalent amount to purchase an income-producing asset — typically an investment property or shares. The ATO permits the interest on funds borrowed for income-producing purposes to be claimed as a deduction under section 8-1 of the ITAA 1997. The deductibility of interest is determined by the *use* of the borrowed funds, not the loan account through which they are drawn. For investors who own their primary residence with usable equity, debt recycling can progressively convert after-tax mortgage repayments into before-tax investment deductions over time. Loan structure and documentation must be properly managed; advice from a registered tax agent and mortgage broker is recommended before implementation. --- ## Queensland Land Tax: The Recurring Cost Investors Underestimate Land tax in Queensland is assessed annually on the unimproved value of land held above a general threshold of \$600,000 (2025–26 assessment year). A residential investment portfolio with combined land values below that threshold incurs no Queensland land tax. Above it, a progressive rate applies. Foreign investors face an additional 3 per cent surcharge on Queensland landholdings above the threshold, on top of the standard rate. The principal place of residence exemption does not extend to investment property. That distinction applies in every Australian state — a point frequently overlooked when investors compare Queensland comparatively high threshold favourably against, say, Victoria \$50,000 threshold. --- ## The FIRB Barrier: Overseas Investors and Established Property For investors based outside Australia, the established property market is effectively closed. On 1 April 2025, the Foreign Investment Review Board extended its policy position on established residential dwellings, with restrictions in place until 30 June 2029, as confirmed in FIRB Guidance Note 6 (version 4, December 2025). The stated rationale is that foreign capital should be directed to new dwellings, increasing housing stock rather than competing with domestic owner-occupiers. Australian citizens and permanent residents face no FIRB restrictions when purchasing established property, regardless of where they currently reside. --- ## The Investor Position in Mid-2026 Those who hold established property purchased before 12 May 2026 retain full negative gearing rights, with their CGT position partially protected — gains accruing before 1 July 2027 attract the current 50 per cent discount. SMSF structures are untouched by the reform. Division 43 deductions continue as before. Debt recycling remains a valid, ATO-sanctioned strategy. Those purchasing now — after the announcement but before 1 July 2027 — should understand that negative gearing on that property will be restricted from that date. The decision to proceed turns on rental yield, long-term capital growth projections, holding structure, and whether the purchase is made via superannuation. What established property offers that a new build frequently does not is demonstrated rental history, location maturity, and the absence of developer margin embedded in the purchase price. The tax framework is changing. The fundamentals of established locations are not. --- *This article provides general information only and does not constitute financial or taxation advice. The proposed changes described are subject to the passage of the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and have not yet been enacted as law. Readers should seek advice from a registered tax agent.*