My investment property runs at a loss — can I have less tax taken out of my pay instead of waiting for a refund?

On 3 November the Reserve Bank lifted the cash rate target to 4.85%. If the rate on your investment loan moves with it, the rent now covers even less of the repayment. The shortfall comes out of your bank account every month, while the tax effect of the rental loss usually turns up only after you lodge your return.

So the question is a practical one: does the tax side really have to wait until next year?

The tool is called a withholding variation

Negative gearing means a rental property's deductible expenses are more than its rent, and the loss reduces your other taxable income. Your employer doesn't take that into account. It withholds tax as if your salary were the whole picture, and the difference comes back when you lodge.

A PAYG withholding variation is an application asking the ATO to approve a lower rate of withholding. The ATO describes its purpose as making sure the tax withheld during the year best meets your end-of-year liability, and negative gearing has its own reason code on the form, 08A0. Your employer can't reduce your withholding until it receives the ATO's notice.

What the numbers can look like

Assume a resident employee on a $120,000 salary with an estimated $15,000 rental loss for 2026–27 and no other deductions. Taxable income would be $105,000 rather than $120,000. Both figures sit in the 30% bracket, so with the 2% Medicare levy the tax for the full year is $4,800 lower. Spread over 26 fortnights, that would be roughly $185 a fortnight, though an approval part-way through the year leaves fewer pays.

Now take the rate rise on its own. A 0.25 percentage point increase on a $600,000 interest-only investment loan, if passed on in full, is $1,500 more interest over a full year. At the same combined 32%, the tax effect is $480, which leaves $1,020 for you to carry. A variation doesn't shrink the bank's bill. It only brings the tax effect forward. These are illustrations, not a forecast of anyone's result.

Who the ATO will process, and how it works

The ATO says it will only process your application if you have lodged all required returns and activity statements, have no outstanding tax debt, and didn't receive a debit assessment on your last tax assessment in a year you also had an approved variation. It won't process applications for losses from share trading, contracts for difference or cryptocurrency.

You can apply through ATO online services in myGov (Tax, then Manage, then PAYG withholding variation), or through a registered tax agent. The form wants your income from all payers for the full year, including bonuses, plus gross pay and tax withheld since 1 July. You list every property you own, and only your share of the rent and expenses according to the title deed.

The ATO aims to process online applications within 28 days and paper ones within 56 days. The lower rate starts from the next available pay day after your pay office receives the notice, so payroll will know about it. The last date to lodge for 2026–27 is 30 April 2027. An application lodged in May or June applies to the next financial year from 1 July.

Two common mistakes

The first is reading approval as the ATO agreeing with your numbers. It says plainly that a variation doesn't mean it has accepted the tax treatment of your income and deductions. Your actual liability is worked out when you lodge. If the estimate was too optimistic, because it included loan principal or the private part of a redraw, you can end up with a bill, and that debit can block your next application. The ATO may also ask for loan contracts, rates and insurance notices, owner statements and depreciation schedules, and records must be kept for at least 5 years.

The second is setting and forgetting it. You must lodge a new application if you sell a rental property, your income will be higher than you stated, you receive an additional bonus or commission, your deductible expenses change, or you change payers. The ATO also names a taxable income change large enough to produce a debit assessment of $500 or more. Anyone with a variation already in place should treat a changed interest bill as a reason to rerun the figures. To continue next year, lodge again at least 6 weeks before the expiry date on your letter.

A date to check before applying for 2027–28

From 1 July 2027, negative gearing on residential property is limited to new builds, and this is already law. Properties held at 7:30pm AEST on 12 May 2026 are exempt. Losses on established residential properties bought from that time will only be deductible against residential property income, so from 1 July 2027 they stop reducing salary.

Applications for 2027–28 open from 1 May 2027. The ATO's form instructions, last updated 28 September 2026, don't address this change. But since a variation exists to match your end-of-year tax, our reading is that a loss which can't reduce your salary gives little basis for lower withholding on that salary.

A sensible first step is to pull the latest loan statement and your rent to date, then estimate the full year honestly. Whether lower withholding suits you is a cash-flow choice as well as a tax one, since some people prefer the lump sum at tax time.

This is general information based on RBA and ATO publications as at 7 November 2026, not advice about your situation. The investment property calculator on this site shows how a change in rate or rent moves the holding cost, and our service for property investors covers the annual return and variation applications. If you're self-employed, our earlier piece on PAYG instalments is the closer match, and we've also written about redraws for private purposes and negative gearing after 1 July 2027.