New Builds vs Established Property: How the 2026 Budget Changes Your Borrowing Power
The 2026 Budget's negative gearing and CGT changes don't just affect your tax bill — they change how much a lender will let you borrow. Here's the maths, with a worked example.
The negative gearing and CGT changes announced in the May 2026 Budget are usually discussed as a tax story. But there's a second-order effect that gets almost no airtime: the same changes also move your borrowing power. Two investors buying near-identical properties, with the same income and the same rental shortfall, can now end up with materially different maximum loan amounts — purely because one bought a new build and the other bought established.
If you're weighing up an investment purchase, that gap is worth understanding before you start talking to lenders.
What actually changed
Two announced changes matter here, both proposed to start 1 July 2027:
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Negative gearing is being limited to new builds. For established residential property bought after 7:30pm AEST on Budget night (12 May 2026), rental losses can no longer be deducted against your salary or other non-property income. The losses are "quarantined" — you can only offset them against rental income or property capital gains, and carry forward what you can't use. New builds keep the ability to deduct losses against all income, the way negative gearing works today. Properties already held at Budget night are grandfathered until you sell.
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The 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax on the net gain. New-build investors get to choose the better of the old discount method or the new indexation method; established-property investors don't get the choice.
The CGT change affects your eventual sale. The negative gearing change is the one that affects your borrowing power today — so that's where we'll focus.
Why a tax change moves your borrowing power
This is the part most people miss. (If you haven't read our explainer on how lenders calculate borrowing power, it's worth a look first — this article builds directly on it.)
When a lender assesses how much you can borrow, they don't just look at your gross salary. They build a picture of your net monthly surplus — income in, commitments and living expenses out — and then work out the largest loan that surplus can support at a stressed assessment rate.
Here's the mechanism: a negatively geared property produces a rental loss. Under the current rules — and under the new rules for new builds — that loss reduces your taxable income, which means you pay less tax, which means more of your salary survives into your net surplus. For an established property under the new rules, the loss is quarantined and can't touch your salary. Same property, same loss, but the established-property investor is assessed as if the loss never reduced their tax at all.
More surplus supports a bigger loan. That's the whole chain.
A worked example
Let's run two investors who are identical in every way except one bought a new build and the other bought established. The numbers below are illustrative and rounded to show the mechanism — they're not a quote.
Shared assumptions for both investors:
- $200,000 salary, single
- Roughly $36,000 a year in living expenses (lenders use a benchmark for this)
- $700,000 investment property, renting at $30,000 a year (lenders typically assess ~80% of rent = $24,000)
- $50,000 in annual holding costs (interest, rates, management, maintenance)
- That produces a rental loss of around $20,000 a year
- Assessed at a stressed rate of 8.5%, 30-year principal and interest
Step 1 — Net income available for servicing
| Investor A (established) | Investor B (new build) | |
|---|---|---|
| Taxable income | $200,000 | $180,000 |
| Tax + Medicare (approx.) | $60,138 | $50,738 |
| Net salary after tax | $139,862 | $149,262 |
| Assessed rent (80% of $30k) | +$24,000 | +$24,000 |
| Property costs | –$50,000 | –$50,000 |
| Net income for servicing | $113,862 | $123,262 |
The only difference is the tax line. Investor B's $20,000 loss reduces taxable income to $180,000; Investor A's loss is quarantined, so they're taxed on the full $200,000. That's a ~$9,400 swing in after-tax income, before anything else happens.
Step 2 — Net of living expenses
| Investor A | Investor B | |
|---|---|---|
| Net income for servicing | $113,862 | $123,262 |
| Living expenses | –$36,000 | –$36,000 |
| Annual surplus | $77,862 | $87,262 |
| Monthly surplus | $6,489 | $7,272 |
Step 3 — Surplus capitalised into a maximum loan
At an 8.5% assessment rate over 30 years, each dollar of monthly surplus supports roughly $130 of borrowing.
| Investor A | Investor B | |
|---|---|---|
| Monthly surplus | $6,489 | $7,272 |
| Maximum borrowing (approx.) | ~$844,000 | ~$946,000 |
The result
- Established: ~$844,000
- New build: ~$946,000
- Difference: ~$102,000, or about 12% more
Same investor, same property value, same rental loss. The entire gap comes from one thing — whether the rental loss is allowed to shield salary income. For the new-build investor it does; for the established-property investor it doesn't.
What this means if you're buying
A few things worth sitting with:
- The tax difference is also a finance difference. It's easy to think of the negative gearing change as something that shows up only at tax time. It also changes the number a lender will write on your approval. If you've modelled a purchase on your current borrowing capacity, an established purchase after Budget night (assuming the changes pass) may not stretch as far as you expect.
- A bigger borrowing capacity is not the same as a better investment. New builds carry their own considerations — pricing, build quality, completion risk, and how the property performs on rent and growth. Borrowing power is one input, not the decision.
- Tax outcomes depend on your circumstances and aren't settled yet. The example above holds everything constant to isolate the mechanism. Your real position depends on your income, your other investments, the property, and the final form of the legislation. Confirm the tax treatment with a registered tax agent.
The reason this matters to us at Mage is simple: borrowing power isn't a single number, it's the output of a calculation that varies with your income mix, your existing commitments, and — now — the tax treatment of the specific property you're buying. The only way to see your real picture is to run your actual numbers.
If you're thinking about an investment purchase and want to understand what you could borrow under each scenario, get a free assessment with Mage. We'll run your real figures across the market, with no impact on your credit score.
This article is general information only and does not take into account your objectives, financial situation or needs. It is not tax, financial or credit advice. The negative gearing and CGT changes described were announced in the 2026–27 Federal Budget and are contained in the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which has passed the House of Representatives and is before the Senate. They are proposed to apply from 1 July 2027, are not yet law, and may change. Consider seeking advice from a registered tax agent and a licensed credit adviser before making a decision.
Frequently Asked Questions
How do the 2026 negative gearing changes affect my borrowing power?
For established residential property bought after Budget night (12 May 2026), rental losses can no longer be deducted against your salary — they are quarantined to property income. Because lenders assess your borrowing capacity on your after-tax surplus, losing that tax shield means you are assessed on more taxable income and less net surplus, which reduces the maximum amount a lender will offer. New builds keep the existing treatment, so they are unaffected.
Do the negative gearing changes apply to property I already own?
No. Properties held at Budget night (7:30pm AEST, 12 May 2026) are grandfathered under the current rules until you sell. The new limits apply to established property purchased after that time. The changes are proposed to take effect from 1 July 2027 and are not yet law.
How much more can I borrow on a new build than on an established property?
It depends on your income, the rental shortfall, and the assessment rate, but the difference can be material. In the illustrative example in this article — a single investor on $200,000 with a $20,000 annual rental loss — the new-build investor could borrow roughly $946,000 versus about $844,000 for the established-property investor, a gap of around $102,000 or 12%. These figures are illustrative, not a quote.
What is changing with the capital gains tax discount?
The 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax on the net gain. New-build investors can choose the better of the old discount method or the new indexation method; established-property investors do not get the choice. This change affects your eventual sale rather than your borrowing power today, and like the negative gearing change it is proposed to start 1 July 2027.
Are these negative gearing and CGT changes now law?
Not yet. They were announced in the 2026–27 Federal Budget and are contained in the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which has passed the House of Representatives and is before the Senate, where it has been referred to committee. The detail could still change, and the rules are proposed to apply from 1 July 2027. Confirm your position with a registered tax agent.