The easiest way to maximise investment property tax claims

Interest on your investment loan is deductible against the rent you receive.

That single principle drives most of the financial structure behind a residential investment property, and understanding it fully means you can keep thousands of dollars more each year than an investor who doesn't.

If you're looking at property in Sylvania or already own one locally, this guide walks through the tax treatment of your loan, the recent legislative changes that affect what you can claim, and the practical steps to make sure your borrowing structure supports the best possible outcome.

What you can claim on an investment loan

You can claim interest on the full amount borrowed to purchase or improve your investment property, as long as the property is rented or genuinely available for rent. Council rates, strata fees, insurance, property management, repairs and depreciation are also deductible for the period the property is tenanted.

Interest on funds borrowed for private purposes is never deductible, even if the loan is secured against an investment property. Consider a buyer who owns a unit in Sylvania and later refinances to take out $30,000 for a family holiday. That portion of the loan no longer qualifies for a tax deduction, so splitting the loans at the time of refinance keeps the investment debt separate and preserves the full deduction on the portion used for rental purposes.

This matters most when you release equity. If you draw down on your investment property loan to fund a deposit on another investment, that new borrowing remains deductible. If you use it to pay off your home loan, renovate your own kitchen, or buy a car, it doesn't. The purpose of the funds, not the security, determines the tax treatment.

How the new negative gearing rules work

From the 2027-28 income year, losses on established residential investment properties purchased after 12 May 2026 can only be offset against income from other residential properties. Losses can no longer be claimed against salary, business income, or other sources outside your property portfolio.

If you bought in Sylvania before that date, or signed a contract before 7:30pm AEST on 12 May 2026, the old rules still apply. You can continue to claim losses against your full income for as long as you hold that property. New builds purchased after the cutoff date are also exempt, and negative gearing continues to apply in full.

For properties acquired after the cutoff that aren't new builds, any loss you can't use in a given year rolls forward. You can apply it against future rental income or capital gains when you eventually sell. The legislation doesn't remove the deduction, it just limits where you can apply it each year.

Capital gains indexation from 1 July 2027

From 1 July 2027, the 50 per cent capital gains discount is replaced with cost base indexation and a 30 per cent minimum tax rate on real gains accruing from that date. For properties you already own, gains up to 1 July 2027 are taxed under the existing discount method, and gains after that date are indexed to inflation.

You can either get a formal valuation at 1 July 2027 or use the apportionment formula published by the ATO. For investors buying new builds, you can choose between the indexed method and the 50 per cent discount when you sell, whichever delivers the lower tax.

This change rewards holding property over the long term in an inflationary environment. Your taxable gain reflects only the increase above inflation, which lowers the effective tax rate for most investors. The minimum 30 per cent rate applies only where your marginal rate on the indexed gain would otherwise fall below that threshold, and it doesn't apply to recipients of the Age Pension, Disability Support Pension, or certain other government payments.

Splitting your loan between offset and interest-only

Many Sylvania investors hold both a home and an investment property. Where that's the case, keeping your owner-occupied loan in an offset account and your investment loan on interest-only gives you the flexibility to pay down non-deductible debt while maximising your deductible interest.

In our experience, the most common structure is to direct surplus cash into the offset account linked to the home loan, reducing the interest charged on that non-deductible debt without affecting the investment loan balance. The investment loan continues to accrue interest at the full loan amount, and that interest remains deductible.

This approach also protects your ability to claim deductions if you later turn your home into an investment property. If you've paid down the investment loan, you can't increase it again without borrowing for a new investment purpose. If you've left it at the original amount and paid down your home instead, you have more flexibility to adjust your strategy as your circumstances change.

Interest rates and serviceability for Sylvania investors

Investor interest rates sit higher than owner-occupier rates, typically by around 0.3 to 0.6 percentage points depending on the lender and loan features. That margin reflects the higher capital cost lenders face under the prudential framework, as investment loans attract a higher risk weight than owner-occupied lending at the same loan-to-value ratio.

Serviceability is assessed at the loan rate plus a 3 percentage point buffer, and rental income is usually shaded by 20 per cent to account for vacancies and periods between tenants. Sylvania's vacancy rate has historically remained low due to demand from young families and professionals working across the Sutherland Shire, which supports stronger rental income assumptions in some lender policies.

From February this year, lenders are also subject to a cap on high debt-to-income lending. No more than 20 per cent of new investor loans can be written to borrowers with total debt exceeding six times their gross income. If your borrowing sits close to that threshold, your application may require additional documentation or a larger deposit to bring the ratio down.

When Lenders Mortgage Insurance applies

Lenders Mortgage Insurance is generally required on investment loans where the loan-to-value ratio exceeds 80 per cent. The premium is paid by you as the borrower, calculated on the loan amount and LVR, and is usually added to the loan balance.

LMI on an investment property is not immediately deductible as a lump sum. It must be claimed over five years or the life of the loan, whichever is shorter. If you refinance your investment loan before the five years are up, you can claim the remaining balance in the year you refinance.

Some lenders allow higher LVRs for investors with strong income or existing equity, but the premium scales sharply above 85 per cent. If you have equity in your Sylvania home or another property, a guarantor structure or equity release may let you avoid LMI altogether while keeping your loans separate for tax purposes.

Claiming borrowing costs and other establishment fees

Loan establishment fees, valuation fees, legal costs for preparing the mortgage, and mortgage broker fees are deductible over five years if the total borrowing expenses exceed $100. If they're $100 or less, you can claim them in full in the year they're incurred.

Stamp duty on the property purchase itself is not deductible as an ongoing expense. It forms part of the cost base when you calculate your capital gain, which reduces the taxable gain when you sell. Stamp duty on any Lenders Mortgage Insurance premium may apply depending on the state, and that component is also added to the cost base rather than claimed annually.

If you refinance to access equity for a second investment property, the new borrowing costs are deductible in the same way, apportioned over five years. Keeping records of the purpose of each refinance and each tranche of debt makes it much easier to support your claims if the ATO ever requests documentation.

Keeping your loan structure clear for the ATO

The ATO's position is straightforward: if there's any doubt about whether a loan is for owner-occupied or investment purposes, it must be treated as an investment loan for the lender's capital purposes, but only the portion genuinely used to produce income is deductible for the borrower.

That means splitting loans at the outset, not mixing private and investment purposes in a single facility. If you take out a loan to buy an investment property in Sylvania and later redraw funds for a private purpose, that redrawn portion is no longer deductible. Some lenders allow you to split a facility into multiple sub-accounts, each with its own purpose, which makes record-keeping and tax reporting much clearer.

A loan health check every couple of years helps you confirm that your structure still matches your investment strategy and that you're claiming everything you're entitled to without overstating deductions.

If you're weighing up an investment property purchase in Sylvania, or you already own locally and want to make sure your loan structure is working as hard as it should be, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions