Top tips to maximise negative gearing on your investment

Negative gearing allows you to offset rental property losses against your salary or other income.

For investors in Malaga buying established properties after May 2026, the ability to claim those losses against wage income ends from the 2027-28 financial year. Losses on properties acquired after that date can only offset income from other residential investments, not your salary. Properties held before that cut-off date, or new builds purchased at any time, retain full negative gearing treatment.

How negative gearing works for Malaga investors

Negative gearing occurs when the total deductible costs of holding a rental property exceed the rental income it generates. Interest on borrowings used to acquire or hold residential rental property is deductible against assessable income to the extent the property is rented or held to produce assessable income. Other deductible costs include council rates, water charges, insurance, property management fees, repairs and depreciation on fittings.

Malaga's industrial precinct and proximity to the airport and Tonkin Highway make it a strong rental location for workers in trade, logistics and manufacturing sectors. Rental yields in the suburb tend to sit higher than inner Perth suburbs due to lower entry prices, which can reduce the size of the annual loss but also the amount of capital required to enter the market.

Consider an investor purchasing an older villa unit in Malaga under an investment loan structure. Annual rental income might be $22,000, while annual interest on an 80 per cent LVR loan, council rates, insurance, property management and routine maintenance total $28,000. The $6,000 shortfall is deductible against the investor's salary income under current rules, reducing taxable income and delivering a tax refund depending on marginal rate.

Interest-only loans and deduction timing

Interest-only repayments do not reduce the deductible interest expense. Principal and interest repayments do. An interest-only investment loan keeps the loan balance and the annual interest deduction stable for the interest-only period, which is typically one to five years. Once the loan reverts to principal and interest, the deduction begins to reduce each year as the loan balance falls.

For investors targeting maximum tax deductions in the early years of ownership, an interest-only structure maintains the highest deductible expense. However, it also means no equity is built through loan repayment during that period. Equity growth relies entirely on capital appreciation and any additional property improvements.

Structuring loans to protect deductibility

Borrowers who draw down funds for private purposes from the same loan facility used to purchase an investment property may lose a portion of the interest deduction. Interest on borrowings for private purposes is not deductible regardless of the security provided. This becomes an issue when redraw facilities or offset accounts are used incorrectly.

The safest structure is a standalone loan for the investment property with no redraw or private transactions touching that loan account. If you need access to equity for private use, a separate split or loan facility against the same security allows the investment loan interest to remain fully deductible while quarantining the private component.

In our experience, this is one of the more common errors made by first-time investors who use a single loan product for multiple purposes and only discover the deductibility issue at tax time. Speak to a broker before drawing down or restructuring any funds secured against an investment property.

The grandfathering rule and what it means for Malaga buyers

Losses from residential investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, continue to be fully deductible against other income, including salary and wages, until the property is sold. Losses from new builds acquired after 12 May 2026 can also continue to be deducted against all income.

If you purchased an established property in Malaga before that date, your loan interest and holding costs remain deductible against wage income indefinitely, as long as you continue to own the property. If you are considering an established property now, losses can only offset income from other residential property investments from the 2027-28 income year onward. Excess losses carry forward but cannot reduce salary income.

New builds retain the original tax treatment regardless of purchase date. Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases. A knockdown-rebuild that replaces one dwelling with one dwelling does not qualify.

Rental income, vacancy periods and deduction claims

Holding costs are only deductible for the period the property is rented or genuinely available for rent. If a property sits vacant without being advertised or available for lease, deductions during that period may be disallowed by the ATO. Property management records, advertising history and lease agreements provide the required evidence.

Malaga's vacancy rate has historically been low due to demand from the industrial workforce, but any extended gap between tenants should be supported by documentation showing the property was actively marketed. Deductions cannot be claimed during renovation periods if the property is not available for rent during that time, although the renovation costs themselves may be deductible depending on whether they are classified as repairs or capital improvements.

Capital gains tax and holding period impacts

The 50 per cent CGT discount continues to apply to capital gains accruing on all residential property, including investment properties, up until 1 July 2027, for individuals, trusts and partnerships who have held the asset for more than 12 months. From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships on affected assets is replaced by cost base indexation using CPI and a 30 per cent minimum tax rate on real capital gains accruing from that date.

For a property purchased now and sold in future years, gains accruing before 1 July 2027 are taxed under the existing discount method, and gains accruing after that date are indexed to inflation and subject to the minimum rate. Investors holding properties long-term will need to apportion the gain or obtain a valuation at the transition date.

This does not change the structure of the investment loan itself, but it does affect the after-tax return on sale and should be factored into any hold-versus-sell decision in the years ahead.

Loan structure, offset accounts and tax treatment

Offset accounts linked to investment loans do not reduce the interest deduction, but they do reduce the interest charged. The loan balance remains unchanged for deduction purposes. For an investor with surplus cash, placing those funds in an offset account reduces the net interest cost without affecting the amount of interest that can be claimed.

Redraw facilities are treated differently. Funds redrawn from an investment loan for private purposes create a mixed-purpose loan, and the interest deduction must be apportioned. This apportionment remains in place for the life of the loan unless the loan is refinanced and split correctly. It is one reason refinancing is sometimes required to restore full deductibility after a loan structure has been compromised.

Building a residential property portfolio under the new rules

Investors acquiring multiple properties after the legislative changes need to account for the fact that losses on one residential investment can offset income or gains on another, but not wage income. A portfolio approach becomes more relevant. An investor with one negatively geared property and one positively geared property can use the loss from the first to offset income from the second, reducing the overall tax liability from the portfolio without needing to rely on salary offset.

Malaga investors often start with a single residential property and later add a second in a neighbouring suburb or a different price bracket. Under the new rules, the second property's income can absorb the first property's loss, assuming both were purchased after the cut-off and neither is a new build. This makes income-producing assets more valuable within a portfolio structure than they were under the prior tax settings.

Call one of our team or book an appointment at a time that works for you. We work with clients across Malaga and the northern suburbs to structure investment loan applications, assess borrowing capacity and ensure loan facilities are set up to protect deductibility and support long-term portfolio growth.

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