Negative Gearing: Avoid These 5 Mistakes for Nurses

Negative gearing allows registered nurses and midwives to deduct investment property losses against their employment income, reducing their tax bill while building equity.

The principle behind negative gearing is that when your rental income sits below your holding costs, including loan interest, the shortfall can be claimed against your salary. For nurses working in public or private health settings, this can meaningfully reduce taxable income in the years you're accumulating equity, provided you understand how the recent legislative changes apply to your situation.

From the 2027-28 income year, losses on established investment properties purchased after 12 May 2026 can only be offset against other residential property income, not your nursing salary. Properties held before that date, and eligible new builds purchased after that date, retain full negative gearing treatment. That division has created two distinct investment pathways, and choosing the wrong one can lock you out of immediate tax benefits for the life of the loan.

Why Negative Gearing Still Works for Nurses Buying New Builds

New build investment properties remain fully negatively gearable regardless of purchase date. Eligible new builds include dwellings constructed on previously vacant land and developments that increase the number of dwellings on a site. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify.

Consider a midwife on a $95,000 salary who purchases an off-the-plan two-bedroom apartment in a newly constructed block. She borrows $580,000 at current variable rates on an interest-only structure. Annual interest costs sit at roughly $29,000. Rental income brings in $24,000 after vacancy periods and property management fees. Body corporate fees, council rates, insurance, and depreciation add another $8,000 in claimable expenses. Her total deductible loss in the first full year is around $13,000, which she can claim against her nursing income, reducing her taxable income to $82,000 and delivering a refund of several thousand dollars depending on her marginal rate.

That loss remains deductible every year she holds the property, regardless of the 2026 legislative change, because the dwelling qualifies as an eligible new build. The same midwife purchasing an established apartment in the same suburb after 12 May 2026 would be unable to claim that $13,000 loss against her salary from the 2027-28 income year onward. The loss would instead be quarantined and only deductible against future residential property income, including capital gains on disposal.

Established Properties Purchased Before 12 May 2026 Retain Full Deductibility

Investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, retain full negative gearing treatment indefinitely. Losses on these properties remain deductible against all income, including employment income, until disposal.

A registered nurse who exchanged contracts on an established townhouse in March 2026 and settled in July 2026 continues to deduct losses from that property against her nursing salary in every subsequent financial year. The same applies to properties purchased years earlier. Grandfathering provisions in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 preserve this treatment regardless of how long the property is held.

If you purchased an investment property before that date and are now considering whether to sell or hold, the grandfathered status is a material factor in the hold-versus-sell calculation. Selling a grandfathered property to purchase an established property now means losing that full deductibility permanently. Selling to purchase an eligible new build maintains it, but only if the new property qualifies under the legislation.

Claiming Interest and Holding Costs Against Rental Income

Interest on an investment loan is deductible to the extent the property is rented or genuinely available for rent. If you occupy the property yourself for part of the year, interest for that period is not deductible. The same apportionment applies to other holding costs.

Ongoing costs including council rates, water charges, insurance, property management fees, repairs, and depreciation on fixtures and fittings are claimable. Loan establishment fees and ongoing account-keeping fees are also deductible. Stamp duty and legal costs incurred on purchase are not immediately deductible but are added to the cost base of the property and reduce your capital gain on disposal.

If you borrow additional funds against the same property for private purposes, only the portion of interest attributable to the investment loan remains deductible. Keeping loan purposes separate, either through split loan structures or offset account quarantining, makes the apportionment straightforward at tax time.

The DTI Lending Limit Applies Separately to Investment Borrowing

From 1 February 2026, authorised deposit-taking institutions may lend up to 20 per cent of new investment loans to borrowers with a total debt-to-income ratio of six times or greater. The limit applies separately to investor lending and owner-occupier lending within each institution.

For a registered nurse earning $92,000 annually, total borrowing across all home loans above $552,000 would exceed the six-times threshold. If that nurse already holds an owner-occupied home loan of $420,000 and applies for a $200,000 investment loan, her total debt sits at $620,000, or 6.74 times her income. The application falls into the portion of lending the bank must manage within the 20 per cent cap.

That does not mean the application will be declined. It means the lender assesses it against a tighter internal quota. Borrowers with strong serviceability, stable employment, and low non-mortgage debt are more likely to be approved within that quota. Nurses with permanent full-time or part-time contracts, minimal credit card limits, and a history of meeting repayments on existing loans generally sit toward the lower-risk end of the assessment.

Interest-Only Structures Reduce Holding Costs But Require Serviceability at P&I Rates

An interest-only loan reduces your monthly repayment during the interest-only period, which increases your deductible loss and your tax refund. The offset is that you are not reducing the loan balance, so your equity growth depends entirely on capital appreciation.

Lenders assess your capacity to service an interest-only investment loan at the principal-and-interest repayment rate, plus a serviceability buffer of at least 3.0 percentage points above the product rate. If the loan product rate sits at 6.20 per cent, the lender assesses serviceability at 9.20 per cent on a principal-and-interest basis, even if you select a five-year interest-only term.

A nurse practitioner earning $125,000 and applying for a $600,000 investment loan on interest-only terms would need to demonstrate capacity to service monthly repayments calculated at 9.20 per cent on a principal-and-interest structure. That equates to roughly $5,950 per month. Rental income from the property offsets part of that commitment, but the lender applies a shading factor to rental income, typically 80 per cent, to account for vacancy and holding costs.

If you already hold an owner-occupied mortgage or other investment debt, those commitments are included in the serviceability calculation. Nurses holding multiple properties or considering portfolio growth need to model serviceability across the entire debt position, not just the new loan in isolation.

Capital Gains Tax Changes Apply from 1 July 2027 to Gains Accruing After That Date

From 1 July 2027, the 50 per cent capital gains tax discount for individuals on residential investment properties is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains accruing from that date. For properties owned before 1 July 2027 and sold after that date, gains are taxed under the existing rules for the portion accruing before 1 July 2027 and under the new rules for the portion accruing afterward.

A registered nurse who purchased an investment property in February 2025 for $620,000 and sells it in September 2029 for $780,000 realises a total gain of $160,000. She must apportion that gain between the pre-1 July 2027 period and the post-1 July 2027 period. She can obtain a market valuation as at 1 July 2027 or apply an ATO-published apportionment formula. If the property was valued at $690,000 on 1 July 2027, the pre-July 2027 gain is $70,000 and the post-July 2027 gain is $90,000. The pre-July 2027 portion is taxed using the existing 50 per cent discount. The post-July 2027 portion is indexed for inflation and taxed at a minimum rate of 30 per cent on the real gain.

For eligible new build properties, investors can choose between the existing 50 per cent discount and the new indexation and minimum rate treatment at the time of disposal. That optionality provides a planning advantage, particularly in low-inflation environments where the discount may deliver a lower tax outcome than indexation.

Borrowing Capacity for Investment Loans Sits Below Owner-Occupier Limits

Lenders apply a higher risk weighting to investment loans than to owner-occupied loans at the same LVR under Prudential Standard APS 112. That risk weighting flows through to pricing and borrowing capacity.

Investment loan interest rates typically sit 0.30 to 0.60 percentage points above equivalent owner-occupier rates. Interest-only investment loans attract a further rate premium of 0.20 to 0.40 percentage points. The rate differential reduces your borrowing capacity because serviceability is calculated at the higher rate, plus the buffer.

A midwife earning $88,000 with no other debt and applying for an owner-occupied principal-and-interest loan might be approved for $640,000. The same midwife applying for an interest-only investment loan at a rate 0.50 percentage points higher would be approved for closer to $580,000, assuming rental income covers 80 per cent of the property's holding costs. The borrowing capacity reduction reflects both the higher rate and the shading applied to rental income.

If you are considering purchasing your first investment property while retaining your current owner-occupied home, your borrowing capacity for the investment loan is calculated after accounting for your existing mortgage commitment. Nurses planning to transition from owner-occupation to investment, or vice versa, should model both scenarios before committing to a purchase.

Losses Are Carried Forward If You Cannot Offset Them in the Same Year

Under the new rules applying from the 2027-28 income year, losses on affected properties that cannot be offset against other residential property income in the same year are carried forward to future years. Those carried-forward losses can be offset against residential property income in any subsequent year, including capital gains on disposal.

A registered nurse who purchases an established investment property in August 2026 and holds no other residential property will accumulate losses each year that cannot be claimed against her salary from the 2027-28 income year onward. If she incurs a $12,000 loss in 2027-28, a $10,000 loss in 2028-29, and an $8,000 loss in 2029-30, she carries forward a total of $30,000 in losses. When she sells the property in 2031, those $30,000 in carried-forward losses reduce her taxable capital gain.

The carried-forward loss does not adjust for inflation and does not attract a time limit. It remains available to offset future residential property income indefinitely. The deferred tax benefit reduces the after-tax return in the holding period but does not eliminate it. Nurses building equity through negatively geared established properties purchased after 12 May 2026 need to factor in the timing difference between incurring the loss and receiving the tax benefit.

Call one of our team or book an appointment at a time that works for you. We work with registered nurses and midwives to structure investment loan applications that reflect your income, your existing debt, and the property type you're targeting. Whether you're buying your first investment property or refinancing an existing loan, we help you access investment loan options from banks and lenders that align with the legislative framework now in place.

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