When to Claim Investment Loan Tax Deductions

Interest on your investment loan is deductible against rental income and other assessable income, provided the property is rented or genuinely available for rent.

Most investors in Bullsbrook focus on the rental return from their property, but the tax treatment of borrowing costs often makes the difference between a sustainable investment and one that drains cash each month. The rules around which expenses you can claim, and when you can claim them, changed significantly from mid-2026, and understanding the difference matters if you're considering a second property or refinancing an existing loan.

Interest Deductibility on Investment Property Loans

You can claim interest on any borrowing used to acquire or hold a residential rental property, as long as the property is rented or held to produce assessable income. The interest deduction applies to both principal-and-interest and interest-only loans, and covers the full period the property is available for rent, even during vacancy periods between tenants.

Consider an investor who purchased a property in Bullsbrook before mid-2026 using a variable rate investment loan with interest-only repayments for the first five years. If the monthly interest charge is $1,800 and the property is rented for the full financial year, the investor can claim $21,600 in interest deductions against their taxable income. If they're on a marginal tax rate of 37 per cent, that deduction reduces their tax liability by around $7,992 for the year. The property also incurs council rates, insurance, property management fees and minor repairs totalling $6,500 annually, all of which are also deductible.

The loan must be used for income-producing purposes. If you refinance and draw additional funds for private use, only the interest on the portion used for the investment property remains deductible. Keeping separate loan accounts for investment and private purposes protects the deduction.

Negative Gearing Under the Current Rules

Negative gearing allows you to offset rental property losses against your other income, including wages, reducing your overall tax liability.

For properties held at 12 May 2026, or properties under contract awaiting settlement at that time, the current negative gearing rules continue to apply until you sell. Losses from these properties remain fully deductible against salary, business income and other assessable income. Eligible new builds acquired after that date also retain full negative gearing treatment.

For established properties acquired after 12 May 2026, losses can only be offset against income from other residential properties, including capital gains on residential property sales. Excess losses carry forward to future years and can be used when you have residential property income to offset them against. Properties in areas like Bullsbrook, where capital growth has historically been driven by infrastructure expansion and demand from Perth's northern growth corridor, may still perform well under the new rules if rental demand remains solid and vacancy periods stay low.

What Counts as a Deductible Expense

Ongoing holding costs are deductible for the period your property is rented or genuinely available for rent. Council rates, landlord insurance, property management fees, strata levies where applicable, and repairs that restore the property to its previous condition all qualify. Depreciation on the building and fixtures also generates deductions, though depreciation rules for second-hand properties have been tightened in recent years.

Expenses related to finding a tenant, such as advertising and letting fees, are deductible in the year they're incurred. Loan establishment fees and LMI premiums can generally be claimed over five years or the term of the loan, whichever is shorter. Costs related to refinancing an investment loan follow similar rules, though you need to apportion them if part of the refinance relates to private purposes.

Improvements that increase the property's value, such as adding a second bathroom or extending the living area, are not immediately deductible. These costs form part of the property's cost base and reduce your capital gain when you sell.

Capital Gains Tax Treatment From July 2027

From 1 July 2027, the way capital gains are taxed on investment properties changes for gains accruing after that date.

Instead of the current 50 per cent discount on gains for assets held longer than 12 months, investors will index the cost base of their property in line with inflation and pay tax on real gains only. A 30 per cent minimum tax rate applies to the indexed gain accruing from 1 July 2027 onwards, which affects investors whose marginal rate would otherwise result in a lower effective rate on that portion of the gain.

For properties owned before 1 July 2027 and sold afterward, gains are 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 indexed cost base and minimum rate rules. You can either obtain a market valuation as at 1 July 2027 or apply a formula published by the ATO to apportion the gain between the two periods.

Eligible new builds retain access to both the 50 per cent discount and the indexed treatment, and you can choose which method to apply when you sell. An eligible new build is a dwelling constructed on previously vacant land or a rebuild that increases the number of dwellings on the site. Knock-down rebuilds that don't increase dwelling numbers, and substantial renovations, don't qualify. A new build that's been occupied for more than 12 months before you buy it loses the exemption.

Structuring Your Loan for Maximum Deductibility

The structure of your investment loan affects how much interest you can claim and how flexible your position is if circumstances change.

Interest-only loans maximise your deductible interest in the early years because the loan balance stays constant and none of your repayment goes toward reducing non-deductible principal. Variable rate loans allow you to make extra repayments into an offset account, preserving the deductible loan balance while giving you access to those funds if needed. Fixed rate loans offer certainty over repayments and interest costs, which helps with budgeting, but generally don't allow offset accounts or extra repayments without penalties.

If you're buying a property in Bullsbrook as a second investment and already own your home with a mortgage, using equity from your owner-occupied property to fund the deposit keeps your investment loan at the maximum deductible level. Borrowing costs on funds drawn for investment purposes remain deductible even when secured against your home, provided you keep the loan accounts separate and the funds are used solely for the investment.

Refinancing and Preserving Deductibility

Refinancing an investment property loan to access equity or secure a lower rate doesn't change the deductibility of interest, as long as the refinanced amount is still used for income-producing purposes.

If you refinance to release equity and use that equity to purchase another investment property, the interest on the increased loan amount remains deductible. If you use part of the released equity for private purposes, such as renovating your own home or taking a holiday, only the interest on the portion used for investment purposes is deductible. Lenders and accountants recommend splitting the loan into separate accounts at the time of refinance to preserve a clear distinction.

Investors who refinanced during the recent rate environment and locked in fixed rates may face break costs if they want to refinance again before the fixed term ends. Those costs are generally deductible over the remaining term of the original fixed period or five years, whichever is shorter.

Bullsbrook as an Investment Location

Bullsbrook sits within the City of Swan, around 40 kilometres north of Perth's CBD, and has seen growing interest from investors targeting affordability and infrastructure-driven demand. The area benefits from proximity to Pearce RAAF Base, the expanding Ellenbrook urban corridor, and major transport links including Tonkin Highway and the planned Morley-Ellenbrook rail line extension.

Rental demand in Bullsbrook comes from a mix of defence personnel, families seeking larger blocks and lower entry prices compared to established suburbs closer to the city, and workers employed in the northern industrial and logistics precincts. Vacancy rates in the broader northern corridor have stayed relatively low, though seasonal fluctuations occur. Investors considering the area need to account for longer settlement periods if buying land-and-build packages, as construction timeframes affect when rental income starts and when deductions begin.

Call one of our team or book an appointment at a time that works for you. We'll review your circumstances, compare investment loan options from lenders across Australia, and structure your borrowing to support your tax position and your broader property strategy.

Frequently Asked Questions