Sarah and James - $1.85M NSW investment property under 2027 reform
Published 2026-05-31 · Updated 2026-06-09
The result. Under current law, holding this heavily-geared $1.85M Sydney rental jointly for 6 years leaves the couple with $501,098 in final after-tax equity. Under the proposed 2027 reform, the same hold leaves them with $363,203 - a $137,894 reduction, or 27.5%. Their after-tax return collapses to 1.59% a year. Below: who they are, the exact inputs we modelled, why losing negative gearing drives the loss, and the structure comparison that helped them decide.
Who they are (anonymised)
- Sarah - medical specialist in Sydney, $250k taxable income before the investment, private hospital cover (so no MLS).
- James- works part-time, $90k taxable income, raising two school-age kids. Covered as a dependant on Sarah's PHI policy.
- The property - established residential in Earlwood, inner-west Sydney, purchased for $1.85M (contract Aug 2026, settlement Sep 2026), expected to grow at 5% per year.
- The loan - $1.628M (88% LVR) at 6.8% interest, 5 years interest-only then principal + interest, 30-year term.
- The rent - $78,000/year (gross, a thin 4.2% yield), expenses $22,500/year (rates, land tax, insurance, maintenance, agent), 3.8% vacancy allowance.
- Ownership - joint personal, 50/50 split.
- Plan - hold for 6 years, sell mid-2032.
The result - current law vs 2027 reform
Every figure below comes from the Byrz calculation engine. You can reproduce this scenario in the sample report.
| Metric | Current law | 2027 reform | Delta |
|---|---|---|---|
| Final after-tax equity (Yr 6) | $501,098 | $363,203 | −$137,894 |
| CGT payable at sale | $113,735 | $90,065 | −$23,670 |
| Negative-gearing tax offset (6y) | $188,079 | $26,515 | −$161,564 |
| Cashflow position (6y total) | −$285,390 | −$446,954 | −$161,564 |
Why the reform costs them money
CGT is actually lower under reform here ($90,065 vs $113,735). The win comes from the CPI-indexed cost base - over the years of holding after 1 July 2027, the cost base of the post-2027 portion compounds at the assumed CPI rate (2.8% here), shielding around $23.7k of nominal gain from tax.
The loss comes from negative-gearing restriction. At 88% LVR and 6.8%, the ~$110k/year interest dwarfs the $78k rent, so Sarah and James run a large pre-tax loss on this rental every year. Under current law, those losses offset their salary income directly - that is worth $188,079 of tax over the hold, and the refund cushions the cashflow burden. Under reform, the established-residential negative-gearing restriction kicks in (s 26-105 proposed): the losses can no longer offset salary, only future property income. The offset collapses to $26,515 - a $161,564 swing that drains cashflow and erodes equity at the same time.
Net: the reform's CGT improvement ($23.7k) comes nowhere near covering the $161.6k of lost negative-gearing offset, leaving them $137,894 worse off after 6 years and dragging the after-tax return down to 1.59% a year. Note the engine still scores their reform exposureLOW - none of reform's new CGT or trust machinery touches a top-bracket couple - even though the dollar hit is severe. That is the trap: the damage here is the negative-gearing change, not the new structural taxes.
Structure comparison - what if they restructured?
We ran the same property through all six structures the engine models. The 2027-reform column is the gross final equity, before the one-time cost of moving the property into that structure.
| Structure | Final equity (reform) | vs joint personal |
|---|---|---|
| Joint personal (current) | $363,203 | - |
| Personal (Sarah only) | $354,456 | −$8,747 |
| Discretionary trust | $346,653 | −$16,550 |
| Company | $219,819 | −$143,384 |
| SMSF (accumulation) | $403,456 | +$40,253 |
| SMSF (pension) | $408,754 | +$45,550 |
Detailed structure breakdowns including the loss/gain mechanism for each are in the full sample report.
The restructure-cost gate
The two SMSF rows look like winners on gross equity - until you price the move. An SMSF can't take existing residential property in-specie from its members (s 66 SIS Act), so the only path is sell-and-rebuy: full CGT crystallisation plus a second round of stamp duty, around $245k all-in. That turns a +$40k gross gain into roughly $158k of equity net of the move - far behind staying put. Shifting to a trust (~$178k) or company (~$176k) is worse again.
Net of the one-time cost, joint personal wins at $363,203- no structure pays its own moving bill back inside the 6-year horizon. The live decision for Sarah and James isn't which structure; it's whether to sell before 1 July 2027 to lock in the 50% CGT discount, or hold and wear the new rules. That is the question the sample report's sale-timing and hold-vs-sell sections are built to answer.
What you can take from this
- The 2027 reform is not uniform. Some positions benefit from indexation; some lose far more from the negative-gearing restriction than they gain from indexation. The mix depends on your loan size, marginal rate, and hold period.
- Negative gearing matters more than people think. For high-LVR established residential, the cashflow drag from losing the salary offset dwarfs the CGT change - here it was $161.6k against a $23.7k CGT saving.
- A low reform-exposure score is not an all-clear. High earners dodge reform's new CGT and trust taxes, yet still take a 27% equity hit from the gearing change. Read the dollar figure, not just the risk label.
- Restructuring carries a real cost. Stamp duty + CGT on the move runs $88-250k for a property in this range. The reform exposure has to be very large before a restructure pays back inside the planning horizon.