Smart ways to approach negative gearing in Bondi Junction

Negative gearing still works for established investment properties you buy in Bondi Junction, but only if you owned them before mid-May or meet one of the exemptions.

From the 2027-28 financial year, losses on established residential investment properties purchased after 7:30pm on 12 May 2026 can only be deducted against other residential property income, not against salary or business income. Losses you can't use this year carry forward to offset residential property income in future years. If you owned the property before that date, or if you're buying a qualifying new build, the old rules still apply and you can deduct losses against your entire taxable income.

For self-employed borrowers and working professionals in Bondi Junction, the change shifts how you structure an investment property purchase. The tax benefit now depends on whether you already own other investment properties generating positive income, and whether the property you're buying qualifies as a new build under the exemption.

How negative gearing worked until mid-May 2026

Negative gearing allowed you to deduct investment property losses against all assessable income, including wages and self-employment income. If your rental property cost $45,000 per year to hold and generated $38,000 in rent, the $7,000 shortfall reduced your taxable income by that amount. At a marginal tax rate of 37 per cent, that meant a $2,590 tax refund each year.

Consider a buyer who purchased a unit in Bondi Junction in early April for $950,000 with a 20 per cent deposit. Interest on the $760,000 loan at current variable rates would run around $50,000 per year on an interest-only loan, with council rates, insurance, strata fees and property management adding another $12,000. Total holding costs of $62,000 against rent of $42,000 produced a $20,000 loss, which reduced taxable income by the same amount. That buyer continues to deduct the full loss against their salary indefinitely because the property was owned before the cutoff.

The new rule from 1 July 2027 for properties bought after 12 May 2026

Losses on established properties purchased after the cutoff are quarantined to residential property income only. You can still claim all the same deductions, including loan interest, council rates, insurance, property management, repairs and depreciation. The difference is where those deductions apply.

If you own multiple investment properties and one is positively geared, you can offset the loss from the negatively geared property against the profit from the positive one. If you sell an investment property and realise a capital gain, you can use carried-forward losses to reduce that gain. But if your only income is from salary or self-employment and you have no other residential property income, the loss stays quarantined until you do.

In a scenario where a self-employed professional in Bondi Junction buys a $900,000 unit in August with an $80,000 deposit and borrows $820,000, the annual interest bill at current rates would sit around $54,000, with other costs adding $11,000. Rental income of $40,000 per year leaves a $25,000 loss. Under the new rules, that loss can't reduce business income. It carries forward and can be used against rental income in future years, or against the capital gain when the property is eventually sold. The tax refund that used to arrive each year no longer exists unless the investor owns other positively geared property.

What counts as an eligible new build under the exemption

New builds remain fully deductible under the old rules regardless of when you buy them. An eligible new build is a dwelling constructed on previously vacant land, or a property where the number of dwellings on the land increases. A knock-down rebuild that replaces one house with one house does not qualify. A duplex or townhouse built on a block that previously held a single dwelling does qualify.

Substantial renovations do not meet the definition. If a new build is occupied by an owner or tenant for more than 12 months before being sold to a subsequent investor, that subsequent investor loses access to negative gearing under the old rules. The exemption applies only to the first investor who buys it as new or substantially new.

For buyers in Bondi Junction, new build stock is limited. The suburb is predominantly older walk-up blocks and mid-rise developments from the 1970s onward. Buyers looking to access the new build exemption would typically need to look at off-the-plan apartment projects or consider areas with greater development activity. Expanding your property investment portfolio may involve looking across multiple suburbs to find stock that meets both your investment criteria and the new build definition.

How the new capital gains tax indexation works from 1 July 2027

From 1 July 2027, the 50 per cent capital gains tax discount is replaced by cost base indexation and a 30 per cent minimum tax rate on the indexed gain. You index your purchase price by the Consumer Price Index and pay tax only on the profit above inflation. The 30 per cent minimum applies where your effective rate on the indexed gain would otherwise fall below that threshold.

For properties owned before 1 July 2027 and sold after that date, the gain is split. The portion of the gain accruing before 1 July 2027 is taxed under the existing 50 per cent discount rules. The portion accruing after that date is taxed under the new indexation rules. You can either obtain a market valuation as at 1 July 2027 or apply an ATO apportionment formula.

Investors who buy eligible new builds have a choice at the time of sale. They can use either the old 50 per cent discount or the new indexation method, whichever produces the lower tax. That optionality is valuable in a high-inflation environment where indexation may deliver a larger effective discount than the flat 50 per cent.

How lenders assess investment loan serviceability under the new rules

Lenders continue to apply the 3.0 percentage point serviceability buffer and the debt-to-income limit that took effect in February. Each lender can approve up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or more, measured quarterly.

For self-employed borrowers, the new negative gearing rules affect how much rental income the lender will recognise when assessing serviceability. Some lenders have already adjusted their policies to assume a lower post-tax benefit for properties purchased after the cutoff. If you're relying on rental income to support borrowing capacity, the amount the lender will credit has effectively reduced because the tax offset no longer applies to your primary income.

Working with a broker who understands how each lender treats the new rules is now more valuable than it was six months ago. Some lenders are taking a conservative approach and shading all post-cutoff investment loans, while others are assessing on a case-by-case basis depending on whether the borrower has other investment properties. Investment loans and investment loan refinancing both require careful lender selection under the updated framework.

Whether you should still buy an established investment property in Bondi Junction

The answer depends on whether you have other residential property income and how long you plan to hold the asset. If you already own one or more positively geared properties, or if you expect to sell other investment properties within the next few years, the quarantined losses remain useful because they offset that income.

If this is your first investment property and you have no other residential income, the immediate tax benefit is gone. You're now relying entirely on capital growth and the ability to use carried-forward losses against a future gain or against rental income once the property turns positive. That changes the cash flow equation. You need either a larger deposit to reduce the interest burden, a higher rental yield to get closer to break-even, or a longer hold period to allow rents to grow into the loan repayments.

Bondi Junction offers unit medians around $900,000 to $1,000,000 with gross rental yields of 4 per cent to 5 per cent, which are among the stronger yields in the Eastern Suburbs corridor. A unit at $950,000 producing $800 per week in rent delivers a gross yield of 4.4 per cent. After costs, that property will still run at a loss in the early years at current interest rates, but it reaches cash flow neutral sooner than a prestige harbour-side property yielding 2 per cent. For investors who can carry the cash flow gap without relying on an annual tax refund, the fundamentals haven't changed. The asset still delivers long-term capital growth and eventual positive cash flow as rents rise or the loan is paid down.

How debt recycling and equity strategies interact with the new rules

Debt recycling involves converting non-deductible home loan debt into deductible investment debt by progressively drawing equity from your home and redeploying it into income-producing assets. Under the new rules, the interest on debt used to purchase established residential property after the cutoff is still deductible, but the deduction is quarantined to residential property income.

If you're using a debt recycling strategy to build a property portfolio, you need to consider the sequencing. Buying a new build first, or buying established property that will turn positive within a few years, allows you to use that positive income to absorb losses from subsequent purchases. Equity release remains a useful tool, but the structure of the portfolio matters more now than it did before the changes.

Call one of our team or book an appointment at a time that works for you. We'll walk through your circumstances, model the cash flow under the new rules, and identify lenders who understand how to assess investment loans for self-employed and professional borrowers in the current environment.

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