Negative gearing is one of the most talked-about concepts in Australian property — and one of the most misunderstood. It’s often described as a tax strategy, but it’s really a description of a financial position. And it’s a position that makes sense for some investors, and not at all for others.
Here’s a clear breakdown of what negative gearing actually means, how it works, and whether it should be part of your investment strategy.
What Is Negative Gearing?
A property is negatively geared when the costs of owning it — primarily interest on the loan, plus expenses like rates, insurance and management fees — exceed the rental income it generates.
The resulting loss can be offset against your other income (such as your salary), reducing your taxable income and therefore your tax bill.
| 📌 Example: If your investment property generates $28,000 in annual rent but costs $38,000 per year to hold (interest + expenses), you have a $10,000 loss. If you earn $120,000 in salary, your taxable income effectively becomes $110,000. |
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What Costs Are Tax Deductible?
Not all property costs are deductible. In Australia, the following are generally deductible in the year they’re incurred:
Loan interest (the most significant deduction for most investors)
Property management fees
Council and water rates
Land tax
Insurance premiums
Repairs and maintenance (note: improvements are treated differently — depreciated over time)
Depreciation on the building and fixtures (calculated via a depreciation schedule)
Advertising for tenants
Accounting fees related to the investment property
| ⚠️ Tax information in this article is general. The rules around what is and isn’t deductible can be complex. Always consult a registered tax agent for advice specific to your investment. |
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Negative Gearing vs Positive Gearing
| Negative Gearing | Positive Gearing | |
|---|---|---|
| Rental income vs costs | Costs exceed income | Income exceeds costs |
| Tax impact | Reduces taxable income | Adds to taxable income |
| Cash flow | Negative (costs you each month) | Positive (earns you each month) |
| Investment thesis | Capital growth offsets holding cost | Income return plus growth |
| Ideal when… | High income, growth market | Lower income, cash flow needed |
Does Negative Gearing Actually Make Financial Sense?
This depends entirely on your personal situation — and it’s a question worth examining carefully rather than assuming negative gearing is automatically beneficial.
The case for negative gearing rests on two pillars:
The tax reduction today reduces the effective cost of holding the property
Capital growth over time generates a profit that outweighs the cumulative losses
If either pillar fails — the property doesn’t grow in value, or your income isn’t high enough to make the tax deduction meaningful — negative gearing may not serve you well.
Investors in higher tax brackets (above $135,000 taxable income in 2026, taxed at 37%+) benefit most from negative gearing, because each dollar of loss saves them more in tax than it would for someone on a lower rate.
The Capital Gains Tax (CGT) Consideration
When you sell an investment property that has grown in value, you’ll generally pay Capital Gains Tax (CGT) on the profit.
However, if you’ve held the property for more than 12 months, you’re entitled to a 50% CGT discount — meaning only half the capital gain is added to your taxable income. This is a significant benefit for long-term investors and one of the reasons Australian property investment is structured around holding periods of 7+ years.
Before purchasing, use our Borrowing Power Calculator to understand your full borrowing capacity and model different investment scenarios.
Loan Structure and Negative Gearing
How you structure your investment loan directly affects your gearing position and tax outcome:
Interest-only loans maximise the deductible interest expense, deepening negative gearing in the short term
Offset accounts on your home loan (not investment loan) reduce non-deductible interest while preserving the investment deduction
Keeping investment and owner-occupied loans completely separate is essential — mixing them can jeopardise deductibility
This is one of the most important reasons to work with an experienced mortgage broker when structuring investment finance — the difference between a well-structured and poorly-structured loan can cost thousands in unnecessary tax.
Frequently Asked Questions
The saving depends on your marginal tax rate and the size of the loss. At a 37% marginal rate, a $10,000 annual loss saves approximately $3,700 in tax. At 19%, the same loss saves $1,900. A tax agent can calculate your specific position.
Trusts and companies have different tax rules. Companies are taxed at a flat 25% or 30%, and don’t receive the CGT discount. Trusts may distribute losses differently. Negative gearing in a trust or company is complex — always get advice from an accountant who specialises in property investment structures.
No — negative gearing applies to any income-producing investment, including commercial property, shares, and even some managed funds. The same principle applies: if investment costs exceed income, the resulting loss offsets other income.
If you sell for less than you paid (a capital loss), this can be used to offset future capital gains — but it cannot be offset against ordinary income like a salary. Capital losses are carried forward indefinitely until offset against a future gain.
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