What are the Tax Impacts on Property Investment in Bentleigh

What Changed for Property Investors in Mid-2026

Tax treatment of residential investment property changed significantly from 12 May 2026. Losses from established investment properties purchased after that date can only be offset against income from other residential properties, not against salary or wages. Capital gains tax treatment also shifts from 1 July 2027, replacing the 50 per cent discount with cost base indexation and a 30 per cent minimum tax rate on gains accruing from that date. Properties held before 12 May 2026 retain full negative gearing, and new builds purchased after that date also retain full deductibility against all income.

Bentleigh sits within a mature established housing market where the median dwelling price places most properties above the price caps for several first home buyer schemes but within reach for investors with substantial equity or deposit. The suburb's proximity to the Frankston line, local shopping precincts on Centre Road, and zoning that permits dual occupancy and townhouse developments creates consistent demand from tenants and owner-occupiers. For investors purchasing established properties in Bentleigh after 12 May 2026, the inability to offset losses against wage income changes the required deposit size, loan structure, and holding period to achieve a positive outcome.

How Negative Gearing Restrictions Affect Borrowing Capacity

Lenders assess serviceability based on your ability to meet loan repayments from your declared income after tax and expenses. When you cannot deduct investment property losses against your salary, your taxable income increases and your after-tax income falls. This reduces the surplus available to service additional debt. A buyer purchasing an established property in Bentleigh after 12 May 2026 will show lower serviceability than an identical buyer purchasing before that date, even though the property, loan amount, and interest rate remain the same.

Consider a buyer who earns $120,000 annually and holds an existing investment loan on a property interstate that generates a $15,000 annual loss. Before 12 May 2026, that loss reduced taxable income to $105,000. From the 2027-28 income year, the loss can only offset income from other residential properties. If this buyer has no other property income, the $15,000 loss carries forward but provides no immediate tax benefit. The buyer's taxable income remains $120,000, increasing their tax liability by approximately $5,250 and reducing after-tax cash flow by the same amount. Lenders treat this as a permanent reduction in servicing capacity.

When applying for a loan to purchase in Bentleigh after 12 May 2026, this buyer may need to reduce the loan amount, increase the deposit, or demonstrate additional income sources to meet serviceability requirements. Some lenders apply different serviceability treatment depending on whether the property was purchased before or after the legislative change date, so it is worth discussing your circumstances with a broker who can compare how individual lenders interpret the new rules.

Why New Builds Retain Full Deductibility and What That Means for Loan Structure

New builds purchased after 12 May 2026 are exempt from the negative gearing restriction. Losses from new builds remain fully deductible against all income, including salary and wages. A new build is defined as a dwelling that has not previously been sold as a place of residence or sold only to investors who rented it out. Newly constructed apartments, townhouses, and detached homes that meet this definition retain the tax treatment that applied before the legislative change.

Bentleigh has limited opportunities for off-the-plan apartment purchases compared to nearby Southland or Caulfield, but dual occupancy subdivisions and new townhouse developments appear periodically on subdivided blocks. A buyer purchasing a newly constructed townhouse in Bentleigh after 12 May 2026 retains full negative gearing and also has the option at disposal to choose between the 50 per cent capital gains discount or cost base indexation with a 30 per cent minimum tax rate. This creates a tax advantage that is reflected in both purchase price and borrowing structure.

Because new builds retain full deductibility, lenders apply standard serviceability treatment and the buyer does not face the reduced borrowing capacity that applies to established properties. However, new builds often require a higher purchase price per square metre than comparable established homes, and the depreciation schedule for plant and equipment may be lower under Division 40 of the Income Tax Assessment Act 1997, which limits depreciation deductions for plant and equipment in residential properties acquired after 9 May 2017 where the asset was previously used or installed. Buyers purchasing new builds must weigh the retained tax benefit against the price premium and lower depreciation.

Capital Gains Tax Indexation from 1 July 2027

From 1 July 2027, capital gains accruing on residential investment property are taxed under a new method. Instead of applying a 50 per cent discount to the gain, the cost base is indexed to inflation and tax is applied at a minimum rate of 30 per cent to the above-inflation gain. Gains that accrued before 1 July 2027 remain subject to the 50 per cent discount method. The indexed cost base applies only to the portion of the gain that accrues from 1 July 2027 onward.

This change affects holding period calculations and disposal strategy. Under the 50 per cent discount, an investor in the 37 per cent marginal tax bracket paid an effective rate of 18.5 per cent on long-term capital gains. Under the new indexation method with a 30 per cent minimum rate, the effective tax rate is higher unless inflation is substantial. In low-inflation environments, indexation provides limited benefit and the 30 per cent minimum rate applies to most of the gain. Investors purchasing established properties in Bentleigh after 12 May 2026 face both restricted negative gearing and less favourable capital gains treatment, compressing returns at both the holding and disposal stages.

Investors purchasing new builds after 12 May 2026 retain the option to choose either the 50 per cent discount or the indexation method at the time of disposal, allowing them to select whichever produces the lower tax outcome based on actual inflation and gain realised during the holding period. This flexibility is a significant advantage when comparing new build and established property purchases from a tax perspective.

How Loan Structure Responds to the Tax Changes

Loan structure must now account for the reduced tax benefit on established investment properties. A split loan structure that separates the loan into fixed and variable portions allows you to match interest rate exposure to your income stability and refinancing plans, but it does not change the tax treatment of interest deductions. Interest on the entire loan amount remains deductible regardless of structure, provided the loan was used to purchase an income-producing property.

An offset account linked to an investment loan reduces the interest charged but also reduces the interest deduction. This is generally disadvantageous for investment properties where you want to maximise deductions. For buyers purchasing in Bentleigh after 12 May 2026, an offset account may still be useful during periods when the property is vacant or undergoing renovation and not producing assessable income, allowing you to reduce interest costs temporarily without permanently reducing the loan balance.

Investors purchasing established properties in Bentleigh after 12 May 2026 benefit from holding the investment loan separately from any owner-occupied loan. Keeping loans quarantined ensures that interest deductions are not diluted if funds are later used for private purposes, and allows you to refinance each loan independently if your circumstances or the interest rate environment changes. Lenders assess investment and owner-occupied loans differently under the APRA prudential framework, applying higher risk weights and capital requirements to investment lending, which can affect the interest rate and serviceability treatment applied to each loan type.

Stamp Duty and First Home Buyer Concessions in Victoria

Victoria provides a full stamp duty exemption on properties valued up to $600,000 and a sliding scale concession on properties valued from $600,001 to $750,000 for first home buyers. The concession applies to both new and established homes where the property will be the buyer's principal place of residence. Buyers must move in within 12 months of settlement and reside there for at least 12 months. The First Home Owner Grant of $10,000 applies only to new homes valued up to $750,000 and does not apply to established homes.

Bentleigh's established housing stock sits above the full exemption threshold, meaning most first home buyers purchasing in the suburb will access a partial concession or pay full stamp duty depending on the purchase price. An off-the-plan duty concession applied to strata or community title contracts signed on or before 31 October 2026 for properties not yet titled or substantially completed, calculating duty on the land value at the contract date only. This concession has now closed for new contracts.

First home buyers using the Australian Government 5% Deposit Scheme can purchase with a 5 per cent deposit and avoid paying lenders mortgage insurance, provided the property is valued at or below $950,000 in Melbourne and regional centres. Bentleigh falls within the metropolitan area and the $950,000 cap applies. Buyers must confirm that both the purchase price and the lender's assessed value are at or below the cap, as both must be satisfied to access the scheme. Applications are made through a participating lender and cannot be made directly to Housing Australia. The scheme can be used in conjunction with state stamp duty concessions, allowing first home buyers to combine both benefits when purchasing in Bentleigh.

Lenders Mortgage Insurance and Loan-to-Value Ratios for Investment Purchases

Lenders mortgage insurance applies to residential loans where the loan-to-value ratio exceeds 80 per cent. The premium is calculated on a sliding scale based on the loan amount and LVR and is a cost borne by the borrower. For investment properties, LMI premiums are higher than for owner-occupied properties at the same LVR due to the increased risk weight applied under APRA's Prudential Standard APS 112. Some lenders cap the maximum LVR for investment lending at 90 per cent or 95 per cent depending on the borrower's income, employment type, and the property location and type.

A buyer purchasing an established investment property in Bentleigh after 12 May 2026 with a 10 per cent deposit will pay LMI on a 90 per cent LVR loan. The premium may be capitalised into the loan amount, increasing the total debt, or paid upfront at settlement. Stamp duty on the LMI premium may also apply in Victoria, further increasing the upfront cost. Buyers should request a detailed cost estimate that includes LMI, stamp duty on LMI, and all other settlement costs before proceeding, as these can add several thousand dollars to the total amount required.

Investors with equity in an existing property may be able to use that equity as additional security rather than paying LMI, provided the combined LVR across both properties remains within the lender's policy settings. This is particularly relevant for buyers upgrading from a smaller property or purchasing a second investment property while retaining their current home. Cross-collateralisation increases the lender's security but also means that both properties are at risk if you default on either loan, so it is worth discussing the risks and alternatives with a broker before proceeding.

Debt-to-Income Lending Limits from February 2026

APRA activated a debt-to-income lending limit on 1 February 2026, applying to all authorised deposit-taking institutions. Each lender may lend up to 20 per cent of new owner-occupier loans and up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. The limits apply separately to the owner-occupier and investor lending portfolios of each institution and apply to new lending only. Existing borrowers are not affected.

A buyer with a gross annual income of $120,000 can borrow up to $720,000 before reaching the six-times DTI threshold. If the buyer is seeking a loan above that amount, the lender must allocate the loan within its 20 per cent high-DTI allocation. Some lenders exhaust their allocation early in each quarter and may decline applications that would otherwise meet serviceability requirements, while others manage their allocation more dynamically or apply additional credit overlays to borrowers above the threshold. Non-ADI lenders are not subject to this limit, though they typically charge higher interest rates and may have different serviceability and LVR policies.

For buyers purchasing in Bentleigh after 12 May 2026, the combination of reduced serviceability due to negative gearing restrictions and the DTI limit creates a tighter lending environment. Buyers with high incomes relative to the purchase price, substantial deposits, or additional income sources from existing investment properties will find it easier to meet both serviceability and DTI requirements. Buyers relying on maximum leverage or purchasing at high LVRs may need to adjust their target purchase price, increase their deposit, or consider a guarantor loan arrangement if a family member is willing to provide additional security.

What Buyers Should Confirm Before Applying for a Loan

Before applying for a loan to purchase an investment property in Bentleigh, confirm the purchase date of the property for tax purposes. Properties held before 12 May 2026 retain full negative gearing. Properties purchased after that date are subject to the restricted deductibility rules unless the property is a new build. Confirm with your conveyancer or solicitor the exact date of contract exchange, as this determines which tax treatment applies.

Obtain a depreciation schedule from a qualified quantity surveyor if you are purchasing a property eligible for depreciation deductions. Division 43 capital works deductions apply to the building structure and are available on both new and established properties constructed after 15 September 1987 at a rate of 2.5 per cent per year over 40 years. Division 40 plant and equipment deductions apply to removable assets such as carpets, blinds, and appliances, but are restricted for properties acquired after 9 May 2017 where the asset was previously used or installed. A depreciation schedule costs between $400 and $800 depending on the property type and location and provides a detailed breakdown of available deductions, which can be used to refine your cash flow projections and loan serviceability assessment.

Confirm whether the lender you are considering participates in government guarantee schemes if you are a first home buyer or single parent. The Australian Government 5% Deposit Scheme is available through a panel of participating lenders and not all lenders participate. If you are applying for home loan pre-approval, specify whether you intend to use a government guarantee scheme so the lender can confirm eligibility and price the loan correctly. Pre-approval provides certainty on the loan amount, interest rate, and conditions before you make an offer, reducing the risk of settlement delays or financing falling through after exchange.

Law Home Loans can confirm which lenders offer the most suitable loan structure, interest rate, and serviceability treatment for your specific tax position and property type. Call one of our team or book an appointment at a time that works for you.

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