Tax Deductions & Investment Loans for Detectives

The rules changed on 1 July this year.

If you bought before 12 May last year, nothing changed for you. If you signed a contract between 12 May and 30 June this year, you had one transitional year under the old rules. If you settled or exchanged after 1 July, your losses from that property stay quarantined until you have rental income or a capital gain to offset them against.

That doesn't mean property stopped being a viable wealth strategy for detectives. It means the structure of your loan, the timing of your purchase, and whether you're looking at new builds or established stock now matter more than they used to.

What Changed With Negative Gearing From 1 July

Net rental losses on established residential property acquired on or after 7:30pm on 12 May last year can no longer be offset against your salary or other income. Those losses carry forward and can only be used against future rental income or capital gains from residential property. Properties you owned before that date, or had under contract awaiting settlement, still operate under the old rules until you sell.

Eligible new builds are exempt. That means dwellings built on previously vacant land, or properties where a knock-down added extra dwellings to the site. A straight knock-down rebuild that doesn't increase the number of dwellings isn't eligible. If a new build is lived in for more than 12 months before being sold to the next investor, it loses the exemption for that buyer.

Consider a detective who settled on a two-bedroom unit in an established block in late August. The property produces $28,000 in rent annually, costs $32,000 in interest, body corporate, rates and insurance. That $4,000 loss can't reduce taxable income this financial year. It carries forward and offsets future rental income from that property or another residential investment, or gets used when the property is eventually sold.

Deductions That Still Apply to Every Investment Loan

Interest on borrowings used to acquire or hold a rental property remains fully deductible, provided the property is rented or genuinely available for rent. The change to negative gearing affects how losses are used, not whether interest is claimable.

Other claimable expenses include council and water rates, building and landlord insurance, property management fees, repairs and maintenance, strata levies, pest control, gardening for the rental property, and depreciation on plant and equipment. Land tax is deductible in every state except where the property is your main residence.

Loan establishment fees and ongoing account-keeping fees for the investment loan are also deductible. These are often overlooked, but a $600 annual package fee on an investment loan adds up over a 10 or 15 year hold period.

How Interest-Only Loans Interact With the New Rules

Interest-only repayments don't change the deductibility of interest. They do, however, keep your loan balance steady, which means your deductible interest stays higher for longer.

Under the old system, maximising your deduction often meant keeping the loan interest-only and reinvesting surplus cash flow into the next property. Under the new rules, that approach still works if you're building a portfolio of new builds or if you already have other rental income to absorb the loss.

If you're holding a single established property with no other rental income, an interest-only period might still make sense for cash flow during the early years, especially if you're planning to add a second property within a few years. Once that second property starts generating income, the carried-forward losses from the first become usable again. The structure of the loan needs to match the timeline of your strategy, not just the tax year in front of you.

Most lenders offer interest-only periods of up to five years on investment loans, after which the loan reverts to principal and interest unless you apply for an extension. That reversion point is worth planning for, particularly if you're working rotating shifts and want repayment flexibility locked in before rates move.

New Builds and the Quarantine Exemption

Eligible new residential dwellings purchased on or after 12 May last year remain fully exempt from the quarantine. Losses can still be offset against salary and other income under the existing negative gearing arrangements.

In our experience, this has brought more detectives back to house and land packages and new apartments in precincts where supply is still being added. The deposit required is often similar to established stock, but the depreciation schedule is far more generous in the first decade and the gearing treatment is unchanged.

A new build also comes with a builder's warranty and lower maintenance spend in the early years, which keeps your out-of-pocket costs lower while you're managing the loan alongside your own living expenses. The trade-off is usually location. New developments tend to sit further from established transport and retail, which can affect tenant demand and vacancy rates depending on the area.

Capital Gains and the Indexation Switch

From 1 July this year, the 50 per cent capital gains discount was replaced with cost base indexation and a minimum 30 per cent tax rate on real gains for affected properties. Gains that accrued before 1 July are still calculated under the old discount rules. Only gains accruing after that date use the new method.

For eligible new builds, you can elect to use either the old 50 per cent discount or the new indexed cost base with the 30 per cent minimum. That election happens when you sell, not when you buy, so it gives you the flexibility to choose whichever delivers the lower tax depending on how inflation and holding period play out.

If you're on a means-tested income support payment in the year you sell, the 30 per cent minimum doesn't apply to you. The main residence exemption is unchanged and still applies in full if you move into the property and establish it as your home before selling.

Structuring the Loan Before You Exchange

Most of the tax outcome is locked in when you sign the contract, but the loan structure is locked in when you settle. That gives you a window to set up offset accounts, split loan portions between fixed and variable, and decide whether to take an interest-only period.

If you're buying an established property under the new rules and expect to add a second investment within a few years, a split loan can be useful. Keep part of the loan on a variable rate with full offset so any surplus income reduces the non-deductible debt on your own home via debt recycling, and fix the other portion to lock in your deductible interest cost.

If you're buying a new build and plan to claim the full loss against your salary, an offset account on the investment loan doesn't help you. Every dollar sitting in that offset reduces your deductible interest. In that scenario, you're often better off directing surplus cash into your owner-occupied loan or a separate savings account that isn't linked to the investment.

This is also the point to confirm your borrowing structure matches who will hold the property. If you're buying jointly with a partner, the loan should be joint. If you're buying in your own name because your partner's income will push you over a DTI threshold or because you want to keep the asset separate for estate planning, the loan needs to reflect that. Mismatches between contract and loan create problems at settlement and with the ATO later.

Refinancing Investment Loans After the Rule Change

If you bought before 12 May last year, you're grandfathered under the old negative gearing treatment. That doesn't change when you refinance. The date of acquisition is what matters, not the date of the loan.

Refinancing an investment loan can still improve your position if rates have moved, your equity has grown, or your current lender's serviceability model is limiting your borrowing capacity for the next purchase. Some lenders have also introduced higher rate discounts for investment loans with loan-to-value ratios below 70 per cent, which can be worth pursuing if your property has increased in value since you bought.

If you're refinancing to release equity for a second purchase, the new borrowing is assessed under current APRA serviceability settings, including the 3 percentage point buffer and the debt-to-income cap. The DTI cap applies separately to investor and owner-occupier lending, so if you're close to six times your income on investment debt, some lenders will decline further investment lending even if your serviceability is comfortable. Others retain discretion for borrowers with strong repayment history and low living expenses.

When to Talk to Someone Who Knows the Rules and the Lenders

The interaction between the new tax rules, APRA's DTI settings, and each lender's investment policy is not something you can reverse-engineer from a comparison website. Some lenders still assess interest-only investment loans at loan-to-value ratios up to 90 per cent for detectives and other law enforcement, often without Lenders Mortgage Insurance. Others cap investment lending at 80 per cent regardless of occupation.

Some will include 80 per cent of expected rental income when calculating serviceability. Others use 100 per cent if you have a signed lease at settlement. Some will allow you to use carried-forward losses to reduce your taxable income in their assessment even though the ATO won't let you use them yet. Others ignore them entirely until they've actually been offset.

If you're looking at new builds, some lenders treat house and land packages as construction loans and require two separate applications and valuations. Others treat them as a single purchase if the contract is structured correctly. If you're comparing a new apartment in a multi-unit development against an established townhouse, some lenders will lend more against the townhouse even if it's older, purely based on presale percentage in the apartment block.

You also need to know whether the new build you're considering is actually eligible under the legislation. A substantial renovation isn't the same as a new dwelling. A knock-down rebuild that replaces one house with one house isn't eligible, even if the new house is twice the size. A knock-down that replaces one house with two townhouses is. The contract description and council approval documents matter, and most buyers don't know what to look for until it's too late to change.

Call one of our team or book an appointment at a time that works for you. We work with detectives across every state, we know which lenders assess shift work properly, and we know how to structure investment loans so they still work under the new rules.

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