Grandfathered properties: To sell or refinance?

If you own an investment property in Melbourne, you've probably heard the word "grandfathering" thrown around a lot since the 2026-27 Federal Budget was announced. It sounds technical, but what it actually means for you is straightforward, and for most existing investors, it could be good news.

Grandfathering is the government's way of saying the new rules don't apply to what you've already done. But to understand why that matters, it helps to know what the new rules actually are.

This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant and solicitor before making any decisions.

What changed on Budget night?

The 2026–27 federal Budget introduced two of the most significant changes to property investment tax settings in decades. From 1 July 2027, negative gearing on residential investment properties will be restricted to new builds only. Under the current system, investors who make a loss on a rental property can use that loss to reduce other taxable income, such as their salary. From July 2027, that offset against wages will no longer be available for established properties purchased after Budget night.

The Budget also overhauled the capital gains tax (CGT) discount. The existing 50% discount for assets held longer than 12 months will be replaced by a system based on CPI indexation, with a 30% minimum tax rate applying to real capital gains.

These are big changes, but they do come with protections for existing investors. That's where grandfathering comes in.

What does grandfathering actually mean for you?

If you owned an established investment property before 7:30pm AEST on 12 May 2026, your negative gearing entitlements remain unchanged for as long as you hold that property. The changes do not apply to you until you sell.

There is no deadline to sell before and no penalty for holding. Your negative gearing tax position on that property is preserved.

The CGT changes are similarly structured to avoid disruption. For assets you already own, only gains accrued after 1 July 2027 will be subject to the new indexation rules. Gains accrued up to that date will still attract the current 50% CGT discount when you eventually sell.

The government has indicated that taxpayers will be able to determine their property's value at 1 July 2027 either through a formal valuation or an Australian Taxation Office-approved formula, so the split between old-rules gains and new-rules gains can be calculated cleanly.

In practical terms, if you bought your investment property in Melbourne five years ago and sell it in ten years' time, only the appreciation that occurs after 1 July 2027 will be taxed under the new regime. Everything before that date remains under the current rules.

Should you sell?

For most investors in the position described above, a rushed sale could cost more than it saves. You would trigger your CGT liability now - under current rules, yes, but also at current prices - and lose the grandfathered negative gearing entitlement in the process. If you rebought after 1 July 2027, the new rules would apply to your replacement property in full.

Treasury's own modelling expects the reforms to produce a modest and temporary softening in house price growth of around 2% over several years. To put that in context, Melbourne's median house price in May 2026 was $972,734, according to Cotality. A 2% movement on that figure is unlikely to change the long-term investment case for a well-located property, and it is a long way from the market correction some investors are bracing for.

Should you refinance?

Here is where the Budget news could actually work in your favour, and where many investors are leaving money on the table.

Refinancing an existing investment property does not affect its grandfathered status. The negative gearing entitlement is attached to the property and its ownership, not to the loan structure. Switching lenders or renegotiating your rate does not trigger any of the new rules.

Why the timing matters

This is important and timely because the Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points at its May meeting – the third increase in 2026 – and lenders have been moving their investment loan rates in response.

For investors focused on the Budget headlines, it is easy to overlook the fact that your borrowing costs may have increased significantly without you having actively reviewed whether your current lender is still giving you a competitive deal. Loyalty might not pay in lending, and a rate review costs nothing.

Structure and features

Beyond the rate itself, it is also worth thinking about loan structure. With the cash rate having risen sharply and some forecasters anticipating it may increase even more, there is a case for considering whether a fixed rate or a split between fixed and variable could provide some certainty over your repayments.

That said, fixing is not right for everyone. It limits flexibility, can come with break costs if your circumstances change and requires a view on where rates are heading that nobody can make with confidence.

Loan features matter too, particularly for investors managing cash flow carefully in a higher-rate environment. An offset account, for example, can reduce the interest calculated on your loan while keeping your funds accessible, which is very different to simply making extra repayments. Redraw facilities and interest-only periods are also worth considering alongside the headline rate. The cheapest loan on paper is not always the most useful loan in practice.

What to consider before refinancing

But before you make the decision, there are some factors to consider. Break costs on fixed-rate loans, discharge fees and application fees all need to be weighed against the potential savings. At AXTON Finance, we have access to more than 30 lenders and can run a proper comparison for your situation. We use your actual numbers, your goals and an honest conversation about whether moving makes sense.

It is also worth noting that for investors who purchased established properties between 12 May 2026 and 30 June 2027, the position is slightly different. Negative gearing remains available during that window but will cease from 1 July 2027. Anyone in this situation should get clear advice before making decisions.

Where does this leave you?

The Budget has changed the rules for new property investment decisions from July 2027 onwards. For existing Melbourne investors with properties bought before Budget night, the fundamentals of your position are intact. You have time, you have flexibility and you have options.

Reviewing your loan now to understand your rate, your structure and your features costs nothing and could save you a great deal. Your grandfathered entitlements remain intact regardless of what you do with your lending.