RBA Rates and Rules on Investment Properties
MAY REPORT
Curious About the RBA Rate Rise May 2026 and Negative Gearing Changes? Here's What It Means for Investment Properties
In May 2026, the Reserve Bank of Australia raised interest rates, and the Federal Government announced significant changes to the tax treatment of investment properties. This Crew Agency May Report explains both updates in clear and simple terms.
What Happened at the May 2026 RBA Meeting?
On 5 May 2026, the Reserve Bank increased the cash rate by 0.25% to 4.35%. This marked the third consecutive rate rise in 2026. The cash rate is the benchmark interest rate set by the RBA. When it rises, banks typically increase interest rates on home loans and other forms of borrowing.
Why Did the RBA Raise Rates?
The RBA’s primary responsibility is to maintain inflation within its target range of 2% to 3%. The Board decided to raise rates because inflation had picked up and was expected to remain above target for some time. Higher global energy prices, linked to international events including the Middle East conflict, added further pressure on costs across the economy. The RBA increased rates to help slow spending and bring inflation back under control.
Most economists anticipate that the RBA will now pause further rate rises for the remainder of 2026 while it assesses the impact of these increases.
What Does a Higher Cash Rate Mean?
A rise in the cash rate generally leads to:
Higher interest rates on variable home loans
Increased monthly mortgage repayments for borrowers
Higher costs for anyone looking to take out a new loan
This can make property purchases more expensive and may slow activity in the housing market.
Changes to Investment Property Tax Rules
In the May 2026 Federal Budget, the Australian Government announced major reforms to negative gearing and capital gains tax for investment properties. These changes will take effect from 1 July 2027.
Negative Gearing Changes – Simple Explanation
Negative gearing occurs when the costs of owning a rental property exceed the rental income received. Under current rules, investors can deduct this loss against their other income, such as wages.
From 1 July 2027:
Negative gearing deductions will only be available for newly built homes.
Investors who enter into a contract to purchase existing properties after 7:30pm AEST on 12 May 2026 will no longer be able to deduct rental losses against their regular salary or wages.
Losses can still be offset against rental income or capital gains from residential properties and may be carried forward to future years.
Properties already owned or under contract before 7:30pm AEST on 12 May 2026 will continue to be covered by the existing negative gearing rules.
Capital Gains Tax Changes – Simple Explanation
Currently, individuals receive a 50% discount on capital gains tax when they sell an investment property. From 1 July 2027, this 50% discount will be replaced with a system based on inflation adjustment (cost base indexation), along with a 30% minimum tax rate on capital gains. These changes reduce the tax concession available when selling investment properties in the future. Transitional rules apply for 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
The Reserve Bank raised the cash rate in May 2026 to help manage rising inflation. In the same month, the Federal Government introduced tax reforms that will limit negative gearing on established investment properties and change capital gains tax arrangements from July 2027. Properties purchased (or under contract) before 12 May 2026 are largely protected from the new tax rules.
These updates are designed to support new housing supply while reducing some of the tax advantages previously available for existing investment properties.
References
Reserve Bank of Australia (2026) Monetary Policy Decision (Accessed: 24 May 2026).
Australian Government (2026) Budget 2026–27: Tax Reform (Accessed: 24 May 2026).
Crew Agency Disclaimer
This article is a simple factual summary prepared by Crew Agency for general informational purposes only. Crew Agency and its representatives are licensed real estate agents operating in compliance with Australian law. We are not financial advisers, tax advisers, or legal advisers.
Nothing in this report constitutes financial, investment, tax, or personalised advice. The information should not be relied upon when making any property or financial decisions.
Before taking any action, you must obtain independent advice from a qualified financial adviser, accountant, solicitor, or mortgage broker.
To the maximum extent permitted by law, Crew Agency and its related parties disclaim all liability for any loss or damage arising from reliance on this information.
This disclaimer is governed by the laws of New South Wales, Australia.