Why the investor tax changes are making people panic, and what to actually do

Should we sell before the CGT changes hit? That’s the question our YBR brokers have been getting from investor clients. Sometimes it’s about selling. Sometimes it’s about swapping a growth property for a high-yielder in a regional town the investor has never visited. Sometimes it’s about buying a second investment in a hurry, before the settings change again.

The panic is real. The decisions being made off the back of it are, in some cases, worse than the tax change itself.

Here is what we want you to understand before you touch anything in your portfolio.

What actually changed and what didn’t

The Federal Budget flagged reforms to negative gearing and capital gains tax settings for property investors. The Property Investment Professionals of Australia (PIPA) has publicly warned that some investors are already restructuring their portfolios based on incomplete information, and in doing so, chasing high-yield properties in markets they don’t understand. That warning is worth taking seriously.

What has not happened is a wholesale abolition of negative gearing. What has not happened is a retrospective change to CGT on properties you already own. The reforms are targeted, staged, and in some cases still being finalised through consultation. If your investment strategy was working last month, the odds are it still broadly works this month. What may need to change is the numbers around the edges, not the whole plan.

The trap we’re seeing borrowers fall into is treating one tax lever as the whole equation. Tax is one input. Borrowing capacity, interest rates, rental yield, capital growth outlook, cash flow, land tax, insurance, maintenance, and your own income stability are all the other inputs. Pull on one lever hard enough and you can absolutely make the other levers worse.

The high yield chase and why it usually ends badly

Here’s the pattern our brokers are watching play out. An investor hears the tax deductibility on their negatively geared metropolitan property might reduce. They panic. They start looking at 7 or 8 per cent gross yields in mining towns, satellite regional markets, or specialist property types like NDIS or student accommodation. On paper the cash flow looks brilliant. In practice, the risks stack up in ways most first-time investors don’t see until it’s too late.

Higher-yield properties often come with higher vacancy risk, thinner capital growth, narrower buyer pools when you eventually sell, and lender restrictions that make refinancing hard. Some lenders on our panel will only lend up to 70 or 80 per cent in postcodes they consider high risk. Some won’t lend at all against certain property types. If you buy the wrong asset in the wrong postcode, you can find yourself locked into one lender at their mercy at refinance time.

A tax saving of a few thousand dollars a year is not worth trading for an asset that loses you fifty thousand in capital growth over the same period, or leaves you unable to refinance when rates move.

What this actually means for your borrowing capacity

If you are considering any change to your portfolio, this is the first conversation to have with your broker, not the last. Serviceability is not a fixed number; it’s a current assessment based on your income, your existing debts, the rental income lenders will accept (usually shaded down to 75 or 80 per cent of gross), and the assessment rate lenders apply on top of the actual interest rate.

The tax changes may affect how much of your negative gearing benefit lenders factor into your income. Some already take a conservative view. Others allow more of the tax benefit to boost your borrowing capacity. If the deductibility rules tighten, expect lenders to recalibrate. That means the borrowing capacity you had six months ago is not necessarily the borrowing capacity you have today, and it’s certainly not the capacity you’ll have in twelve months.

For investors with two, three or four properties already, this matters enormously. Restructuring debt across a portfolio, splitting loans, revisiting whether an offset makes more sense than a redraw, considering whether interest-only is still appropriate given your cash flow, these are the levers that actually move the dial. Not panic-selling a good asset because a headline scared you.

The question to ask before you do anything

Before you list a property, buy a new one, or restructure a loan, sit down with your broker and work through the whole picture. What does your borrowing capacity look like today under the current rules? What does it look like under the proposed rules once they take effect? How does your current loan structure interact with the changes, and is there a better structure? If you sold this property, what would the CGT actually be, and where would that capital go? If you bought a higher-yield property, what would happen to your overall portfolio risk?

These are not questions with quick answers. They require running actual numbers against your actual situation. A quick chat and a serviceability calculation will tell you far more than any headline will.

We’re seeing a lot of investors make the mistake of talking to their accountant about tax, their real estate agent about the market, and no one at all about how their loan structure ties it all together. The loan is often where the biggest efficiencies (and the biggest mistakes) sit. Your broker is the person who sees how tax, cash flow, borrowing capacity and lender policy interact.

For the numbers side of things, our borrowing power calculator and repayment calculator at ybr.com.au/calculators/ are a decent starting point to get a rough sense of where you sit. They’re a starting point, not an answer. The answer comes from a proper conversation. 

If you want a deeper dive into how policy shifts are moving the property market right now, the latest Property Insights episodes on the YBR YouTube channel are worth a watch. They unpack what the data providers and economists are actually saying, rather than what the headlines are shouting.

The short version is this. Don’t restructure your portfolio on the back of a headline. Don’t chase yield into a market you don’t understand. Don’t assume the rules that applied last year still apply, and don’t assume the rules being debated this year will land exactly as proposed. Get the full picture first. That’s usually the point where a quick conversation with your local YBR broker can stop a small worry becoming an expensive mistake.

 *This information is general in nature and does not take into account your personal circumstances, objectives or financial situation. Consider whether it’s appropriate for you and seek personal tax and financial advice before making any decisions.