RBA Rates and Rules on Investment Properties
May Report — the RBA rate rise and negative gearing changes, and what they mean for investment properties.
In May 2026 the Reserve Bank raised interest rates and the Federal Government announced significant changes to how investment properties are taxed. Here are both updates in plain terms.
What Happened at the May 2026 RBA Meeting?
On 5 May 2026 the Reserve Bank lifted the cash rate by 0.25% to 4.35% — the third consecutive rise in 2026. When the cash rate rises, banks typically raise rates on home loans and other borrowing.
Why Did the RBA Raise Rates?
The RBA aims to keep inflation within its 2–3% target range. Inflation had picked up and was expected to stay above target, with higher global energy prices — linked to international events including the Middle East conflict — adding pressure. Higher rates help slow spending.
Most economists expect the RBA to pause further rises for the rest of 2026.
What Does a Higher Cash Rate Mean?
- Higher interest rates on variable home loans
- Higher monthly mortgage repayments
- Higher costs for new loans
This can make purchases more expensive and may slow the housing market.
Changes to Investment Property Tax Rules
The May 2026 Federal Budget announced major reforms to negative gearing and capital gains tax, taking effect from 1 July 2027.
Negative Gearing Changes – Simple Explanation
Negative gearing is when a rental property’s costs exceed its rental income. Currently, investors can deduct that loss against other income, such as wages.
From 1 July 2027:
- Deductions will only be available for newly built homes.
- Investors who contract to purchase existing properties after 7:30pm AEST on 12 May 2026 can no longer deduct rental losses against salary or wages.
- Losses can still be offset against rental income or residential capital gains, and carried forward.
Properties owned or under contract before 7:30pm AEST on 12 May 2026 stay under the existing rules.
Capital Gains Tax Changes – Simple Explanation
From 1 July 2027, the 50% capital gains tax discount on investment property sales will be replaced by inflation adjustment (cost base indexation) and a 30% minimum tax rate on capital gains — a smaller concession when selling. Transitional rules apply to gains accruing before 1 July 2027.
How the RBA Rate Rise and Tax Changes Work Together
| Area | Impact of RBA Rate Rise | Impact of Tax Changes (from July 2027) |
|---|---|---|
| Borrowing costs | Higher interest rates | No direct change |
| Negative gearing | Increases holding costs | Limited to new homes only |
| Selling a property | May slow price growth | Lower tax discount on gains |
| New vs existing homes | Affects all properties | Favours new housing supply |
Summary
Rates rose in May 2026 to manage inflation, and from July 2027 new tax rules will limit negative gearing on established investment properties and change capital gains tax. Properties purchased (or under contract) before 12 May 2026 are largely protected. The changes are designed to support new housing supply.