ETF vs Investment Property A 10-Year Tax-Adjusted Comparison
$180,000 of capital, ten years, and the post-1-July-2027 Australian tax regime — negative gearing abolished for established properties, and the 50% CGT discount replaced by CPI indexation plus a 30% minimum tax on real gains. This analysis compares a leveraged $750k investment property against an unleveraged ETF portfolio — split between a growth-tilted and a dividend-tilted strategy — with annual top-ups that match the property's pre-tax holding cost.
Published: May 2026
Foresight Property Research
Investment Strategy Team
POST-2027 TAX REGIMENG ABOLISHEDCGT INDEXATION30% MIN TAX37% MARGINAL10-YEAR HORIZON
01 — Executive Summary
Net real wealth after 10 years
All figures are real (today's purchasing power, deflated at 2.5% p.a.), after CGT, sale costs, loan payout, and cumulative holding-cost cash drain. Each scenario starts from the same $180,000 initial outlay; the property scenarios require additional out-of-pocket each year (mirrored as ETF top-ups in scenario 1).
Headline finding
02 — Modelling Assumptions
Unified inputs across all scenarios
Every cell below feeds the calculations directly. Change a number and the output changes — this report is a transparent model, not a marketing one-pager.
Shared
Initial Capital
$180,000
Both scenarios
Holding Period
10 years
Jul 2027 → Jul 2037
Base Taxable Income
$150,000
Mid 37% bracket
Effective Marginal
39%
37% + 2% Medicare
Inflation (CPI)
2.5% p.a.
Real-return + cost-base indexation
CGT Method
Indexation
50% discount REPLACED post-2027
CGT Min Tax
30% on real gain
Binds only at lower brackets
Negative Gearing
Abolished
Losses carry forward, not offset salary
Tax Year
2027–28+
Post-Stage-3 brackets
Franking Credits
Refundable
No change to dividend regime
Loss Carry-Forward
Indefinite
Offsets future rent or CGT only
CPI Deflator (Y10)
1.280×
2.5%/yr compounded
Why these rules apply to this scenario
The investment property is purchased after 1 July 2027 and is not a new build, so it falls under the new regime: (1) negative gearing is abolished for established residential property — losses can no longer be offset against salary income, but instead carry forward to offset future rental income or the eventual capital gain; (2) the 50% CGT discount is replaced by inflation indexation of the cost base, with a 30% minimum tax on the real (post-indexation) gain. ETFs follow the same indexation rule for capital gains since the new CGT framework applies broadly from 1 July 2027.
Scenario 1 — ETF Investment
Initial Investment
$180,000
Lump sum at Y0
Annual Top-Up
Variable
= Prop. pre-tax shortfall
ETF "Growth" Cap. Growth
9.0% p.a.
Global / international tilt
ETF "Growth" Dividend
1.0% p.a.
50% franked
ETF "Dividend" Cap. Growth
3.0% p.a.
AU-domestic tilt
ETF "Dividend" Dividend
6.0% p.a.
100% franked
Dividend Handling
Cash income
Taxed annually, not DRP
Brokerage / MER
Excluded
Embedded in net assumption
Example Tickers
VGS / VHY
Growth ≈ intl; Div ≈ AU high-yield
Top-Up Timing
Start of year
Dividends paid on this balance
Ownership Structure
Individual
Trust/SMSF would differ materially
Sequence-of-Returns
Single CAGR
No volatility / path dependence
Scenario 2 — Investment Property
Purchase Price
$750,000
Deposit (20%)
$150,000
Purchase Costs
$30,000
Stamp + legal + inspection
Total Cash Down
$180,000
Matches Scenario 1 capital
Loan
$600,000
80% LVR, interest-only
Interest Rate
6.5% p.a.
Held flat 10y, IO
Annual Interest
$39,000
Constant under IO
Starting Rent
$650/wk
= $33,800 / year
Rent Growth
3.0% p.a.
Operating Costs
30% of rent
Mgmt, insurance, rates, repairs
Property Growth
3% / 5% / 7%
Three scenarios
Exit Costs
2.5% + $3,000
Agent + legal at sale
03 — Methodology
How each side is calculated
The fairness rule
Both scenarios start with $180,000 at Y0. Each year, the property's pre-tax holding cost shortfall (interest + opex − rent) is invested as a top-up into the ETF portfolio. Because negative gearing is abolished, the property investor no longer gets an annual tax refund from rental losses — so the annual cash drain on both sides is now genuinely comparable. The property's rental losses accumulate as a carried-forward loss (CFL) that can only be used at sale, offsetting the eventual capital gain.
ETF after-tax return formula (new CGT regime)
Each year: opening balance (after top-up) grows by capital-growth %. Dividends are taxed annually: grossed up by franking credits, taxed at the marginal rate, with franking credits applied as a refundable offset. Dividend rules are unchanged by the 2027 reform.
At exit: each contribution is indexed by CPI from its contribution date to sale date. Real gain = final value − Σ(indexed contributions). The 50% discount is gone — the full real gain is added on top of base income at marginal rates, with a 30% minimum tax floor on the real gain.
Net wealth: after-CGT sale proceeds + cumulative after-tax dividends − $180k initial − cumulative top-ups (nominal).
Property after-tax return formula (new NG + CGT regime)
Each year: pre-tax cashflow = rent − opex − interest. If negative, the loss does not refund tax against salary — it accumulates as a carried-forward loss (CFL). The investor pays the full pre-tax shortfall out-of-pocket each year. If positive, it's taxed as ordinary income.
At exit: sale proceeds = price × 0.975 − $3,000. Cost base = ($750,000 + $30,000) × (1 + 2.5%)10 = indexed by CPI. Real gain = proceeds − indexed cost base. Cumulative CFL offsets the real gain. The remainder is taxed at marginal rates, with a 30% minimum tax floor on the post-CFL real gain.
Property: vacancy beyond the 30% opex envelope, mid-cycle interest rate moves, P&I amortisation (IO assumed throughout), depreciation schedules (Division 40/43 would favour property), land tax, LMI, major capex events. The new-build CGT election (50% discount alternative for newly-constructed property) is also excluded — the modelled property is established.
ETF: brokerage, MER drag beyond the embedded assumption, market path-dependence (single CAGR assumed), reinvested dividends (DRP would favour ETF compounding), volatility/sequence risk.
Both: further tax-reform risk after the 2027 changes (e.g. minimum tax floor moving), franking-credit changes, or marginal-bracket shifts within the 10-year window. Personal circumstances (trust/SMSF structures, spouse-splitting, low-income years for CGT bracket-filling) can change every number here materially.
04 — Year-By-Year Cashflow
What the investor actually pays and receives each year
Use the filter to toggle scenarios. Property cashflow shows: rent income, operating costs + interest, pre-tax position, the carried-forward loss accrued (since negative gearing is abolished, there is no annual tax shield against salary), and the resulting net out-of-pocket — which now equals the full pre-tax shortfall. ETF cashflow shows: opening balance, top-up, dividend income, dividend tax (net of franking), end-of-year balance.
Property cashflow (identical across growth scenarios — growth only affects exit value)
Year
Rent
Opex + Interest
Pre-Tax CF
CFL Accrued (year)
Cum. CFL
Net Out-of-Pocket
Negative gearing abolished: rental losses are no longer offset against salary. The full pre-tax shortfall is paid out-of-pocket each year, with the loss carried forward to offset the eventual capital gain at sale.
ETF cashflow (top-ups equal each year's property pre-tax shortfall)
View:
Year
Strategy
Opening Bal.
+ Top-Up
Dividend (Gross)
Div Tax (net of franking)
Net Div in Hand
End Bal. (post-growth)
05 — Year-10 Exit
Bottom line at sale
Each card walks from gross asset value through every deduction to net wealth — including cumulative after-tax cashflow received during the holding period. The bar chart below compares nominal net wealth across all five scenarios.
Net wealth comparison (nominal $)
Real net wealth (deflated 2.5% p.a. over 10 years)
Trajectory: net wealth if sold at any year (Y1–Y20)
The Y10 snapshot above is a single point. This chart projects each strategy out to 20 years under the same model and rules — interest-only loan held throughout, top-ups continue, dividends paid as cash, carried-forward rental losses offset future rental income once the property turns positively-geared (around Y17).
Axis:
Lines are smooth in the model because assumptions are smooth (single CAGR, constant interest rate, linear rent growth). Real outcomes are lumpy — concentrated in cyclical years for property, with volatility and sequence-of-returns risk for ETFs.
06 — Crossover Analysis
At what growth rate does property tie the ETF?
Holding every other input constant, this is the property capital-growth rate at which Year-10 net wealth from the property equals the ETF strategy's net wealth. Below the crossover, ETF wins; above, property wins.
07 — Interest-Rate Sensitivity
The property side is rate-sensitive; the ETF side is not
Holding property growth at 5%, this table shows Year-10 net real wealth under three interest-rate regimes. The ETF benchmarks don't change because their cashflows don't depend on the loan rate (top-ups follow whatever the property shortfall is — so they grow when the rate rises, which actually helps the ETF balance compound).
Interest Rate
Property Annual Interest
Y1 Pre-Tax Shortfall
10y Cumulative Top-Up
Property Real Net Wealth
ETF Growth Real Net Wealth
ETF Dividend Real Net Wealth
08 — Key Takeaways
What the model says — and what it doesn't
1. The 2027 reform compresses the gap — property's break-even growth rate falls
2. Indexation hurts growth-tilted ETFs more than dividend-tilted ones
3. Carried-forward losses + indexation can largely substitute for the old NG + 50%-discount combo
The 2027 reform takes away the annual negative-gearing refund but gives back two compensating mechanisms: (a) the rental loss accumulates as a carried-forward loss that offsets the eventual capital gain dollar-for-dollar, and (b) the cost base is indexed by CPI, exempting inflation from CGT. For this $750k property over 10 years, cumulative CFL of ~$118,765 + indexation of ~$218,466 worth of inflation = ~$337,231 of gain that escapes tax entirely. At the 5% growth case this means a real taxable gain of just ~$70,899 — modest compared to what the old discounted-gain calc would have produced.
4. Caveats this model intentionally ignores
Vacancy spikes, mid-cycle rate moves, depreciation schedules (Division 40/43 — would favour property), P&I amortisation, DRP on ETFs (would favour ETF compounding), market path dependence, future tax-reform risk after 2027, the new-build CGT election option (which lets investors choose between 50% discount and indexation — would favour new-build property), and any transitional rules for assets bridging the 2027 reform date. Personal circumstances — a trust, SMSF, or spouse-splitting structure — can change every number here materially. Treat this as a base-case framework, not personalised advice.
09 — References
Tax-reform sources
The post-1-July-2027 tax framework modelled in this report — abolition of negative gearing for established residential property, replacement of the 50% CGT discount with CPI indexation, and the 30% minimum tax on real capital gains — is documented in the Federal Budget 2026-27 announcements and the analyses below.
Tax brackets used in this model are the post-Stage-3 schedule (0 / 16 / 30 / 37 / 45%) plus 2% Medicare levy, in effect from FY2024-25. References were consulted at time of publication (May 2026); readers should verify against current legislation as the reform package may be subject to amendment before its 1 July 2027 commencement.
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