General information for Australian investors — not tax or financial advice.
Australian ContentLegislation & currency: Reflects current ATO treatment of repairs, capital works and depreciating assets, and the direction of proposed negative gearing reforms. How improvement expenditure and interest are treated depends on the nature of the work and your circumstances.
The investor question
You own an investment property and you're considering borrowing more to renovate or improve it. The temptation is to reduce this to a single question — “is the interest deductible?” — but that misses the actual decision. Borrowing to improve a property is an investment: you commit additional debt and expenditure now, in exchange for potential rental uplift, potential value uplift, and a changed cash-flow and tax position over time.
Consider a concrete starting point:
Current position
Property value: $750,000. Investment loan: $400,000.
Proposed improvement
Improvements: $60,000, funded by additional borrowing.
We are not going to tell you what this returns. The point of this guide is to show you the variables to model — the honest answer depends on numbers only you can supply and treatment only your accountant can confirm.
What the negative gearing changes alter
Additional borrowing for an investment property adds interest cost, and where that interest exceeds the extra income the improvement generates, it contributes to a loss. The negative gearing changes matter here only to the extent they change how such a loss can be used.
Separately — and importantly — how the $60,000 itself is treated for tax depends on the nature of the work: immediate repairs, capital works, and depreciating assets are each treated differently, and some improvement expenditure also forms part of the property's cost base for a future capital gains calculation. Those distinctions are exactly why this needs an accountant, not a rule of thumb.
What the changes don't determine
Tax treatment does not tell you whether the improvement is a good investment. That is decided by whether the uplift in rent and value justifies the additional debt, interest and holding costs — a calculation the tax setting only nudges at the edges.
Model the investment decision
Frame the whole decision as a chain, and put a number against each link:
Additional borrowing → interest cost → improvement expenditure → potential rental uplift → potential value uplift → cash flow → debt / equity → tax considerations → eventual investment return
Then work through the questions that turn that chain into a decision:
- How much additional rent could the improvement realistically generate?
- Could it increase the property's value — and by how much, conservatively?
- What additional interest and holding costs does the extra $60,000 of debt create?
- What happens to the property's cash flow, before and after tax?
- What return does the additional $60,000 generate on its own?
- Would using the $60,000 elsewhere produce a better expected return?
- Could the expenditure affect a future capital gains tax calculation?
- What records should you retain to support both deductions and any future cost-base claim?
Questions for your accountant
Improvement expenditure is one of the most treatment-sensitive areas in property tax — the split between repairs, capital works and depreciating assets, and the cost-base implications, all depend on the specifics.
“How would the $60,000 of improvement expenditure be treated — as immediate repairs, capital works, or depreciating assets?”
“How would interest on the additional borrowing be treated, given the purpose of the work?”
“What records should I retain to support both current deductions and any future cost-base claim?”
“Could this expenditure interact with a future capital gains tax calculation when I sell?”
Akweno can help you identify useful questions to discuss with your accountant when considering an investment decision. It does not provide tax advice or identify every matter that may require professional advice.
Explore the numbers
Put your own figures against each link in the chain before you commit to the borrowing.
Try the calculators
ROI Calculator
Test the return the additional $60,000 needs to generate to be worthwhile.
Open calculatorCash Flow Calculator
See how the extra debt and any rental uplift change periodic cash flow.
Open calculatorEquity Forecast Calculator
Project how a value uplift and added debt reshape your equity over time.
Open calculatorGeneral information, not tax or financial advice
This guide is general educational information about how an investment decision could be affected by Australia's negative gearing settings. It is not tax, financial or legal advice, does not account for your circumstances, and tax settings can change. How any rule applies to you depends on your individual situation — confirm your position with a registered tax agent or licensed financial adviser before acting.
Negative Gearing & Investor Strategy
Return to the hub to see how improvement decisions fit the wider strategy.