Negative Gearing Australia: Complete Guide 2026
Understanding negative gearing for Australian property investors. Learn how it works, tax benefits, risks, and whether it's the right strategy for your investment portfolio.
Contents
1. What is Negative Gearing?
Negative gearing is an investment strategy where the costs of owning and maintaining a property exceed the rental income it generates. The resulting loss can be used to reduce your taxable income, lowering your overall tax bill.
📘 Simple Definition
Negative Gearing: When your rental property expenses (loan interest, rates, insurance, maintenance) are greater than your rental income, creating a tax-deductible loss.
For example, if your property costs $30,000/year to own but only generates $25,000 in rent, you have a $5,000 loss. This loss reduces your taxable income from your job or business, meaning you pay less tax.
2. How Negative Gearing Works
The Australian Tax Office (ATO) allows you to offset rental property losses against your other income. Here's the step-by-step process:
The Negative Gearing Process:
- 1. Purchase an investment property (usually with a mortgage)
- 2. Rent it out to generate income
- 3. Claim all deductible expenses:
- Loan interest (not principal)
- Property management fees
- Council rates, strata levies
- Insurance premiums
- Repairs & maintenance
- Depreciation (building + fixtures)
- Water charges, utilities
- 4. Calculate the loss: If expenses exceed rental income
- 5. Offset against your taxable income from salary, business, etc.
- 6. Receive a tax refund or reduced tax bill
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3. Tax Benefits Explained
The main benefit of negative gearing is reducing your taxable income. Here's how the tax savings work:
| Income Bracket | Marginal Tax Rate | $10K Loss Tax Saving | $20K Loss Tax Saving |
|---|---|---|---|
| $45,001 - $120,000 | 32.5% | $3,250 | $6,500 |
| $120,001 - $180,000 | 37% | $3,700 | $7,400 |
| $180,001+ | 45% | $4,500 | $9,000 |
Key insight: Higher income earners save more tax from negative gearing because they're in higher tax brackets. Someone earning $180K+ saves 45% of their rental loss in tax, while someone earning $60K saves 32.5%.
⚠️ Important Note
You're not making money from the tax deduction — you're losing less money. A $10,000 loss that saves $3,700 in tax still costs you $6,300 out of pocket. Negative gearing only makes financial sense if the property appreciates in value over time (capital gains).
4. Real Example with Numbers
Let's look at a realistic example of negative gearing in action:
Example: Brisbane Apartment
Property Details:
- Purchase price: $550,000
- Loan: $495,000 (90% LVR) at 6.5% interest
- Rental income: $550/week ($28,600/year)
Annual Expenses:
- Loan interest: $32,175
- Property management (8%): $2,288
- Council rates: $1,800
- Strata levies: $4,200
- Insurance: $1,200
- Repairs & maintenance: $2,000
- Depreciation: $8,000
- Total expenses: $51,663
Annual Loss:
Rental income ($28,600) - Expenses ($51,663) = -$23,063 loss
Tax Savings (37% bracket):
$23,063 × 37% = $8,533 tax refund
Out-of-Pocket Cost:
$23,063 loss - $8,533 tax saving = $14,530/year ($279/week)
In this example, the investor pays $279/week out of pocket to own this property. The strategy is profitable only if the property appreciates by more than $14,530/year (around 2.6% p.a.).
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5. Benefits of Negative Gearing
- Tax deductions reduce your tax bill: Immediate cashflow benefit from lower PAYG withholding or annual tax refund
- Access to leverage: Banks lend up to 95% for investment properties, allowing you to control a $500K+ asset with $25K-50K deposit
- Potential capital growth: If property appreciates 5-7% annually, gains far exceed short-term losses
- Build wealth without high income: Borrow to invest even if you can't save large amounts
- Rental income grows over time: As rent increases, the property may become positively geared (profit-making) in 5-10 years
- CGT discount: If held 12+ months, capital gains are taxed at only 50% (after CGT discount)
6. Risks and Downsides
Negative gearing isn't free money. Here are the major risks investors need to understand:
❌ Risk 1: Property Doesn't Appreciate
If your property stays flat or falls in value, you're paying thousands per year for no return. In markets with low growth or oversupply, negative gearing destroys wealth instead of building it.
❌ Risk 2: Cashflow Pressure
Paying $10K-20K/year out of pocket requires stable income. Job loss, interest rate rises, or vacancies can quickly become unaffordable, forcing you to sell at a loss.
❌ Risk 3: Interest Rate Increases
A 2% interest rate rise on a $500K loan adds $10,000/year in costs. Your out-of-pocket expenses can double if rates spike, making the investment unsustainable.
❌ Risk 4: Policy Changes
Negative gearing has been debated politically for years. Future governments could cap or remove the tax benefit, eliminating the primary advantage of this strategy.
❌ Risk 5: Depreciation Recapture
All depreciation claimed reduces your CGT cost base. When you sell, you pay capital gains tax on a larger amount, clawing back some of the tax benefit you received over the years.
7. Negative vs Positive Gearing
| Aspect | Negative Gearing | Positive Gearing |
|---|---|---|
| Cashflow | Loss (costs > income) | Profit (income > costs) |
| Tax Treatment | Deduct loss from income | Pay tax on profit |
| Out-of-Pocket | $5K-25K/year | $0 (self-funding) |
| Risk Tolerance | Higher (requires capital growth) | Lower (immediate returns) |
| Best For | High income earners (37-45% tax) | Retirees, passive income seekers |
| Typical Property | Inner-city, capital growth areas | Regional, high-yield areas |
Which is better? It depends on your goals:
- Choose negative gearing if you have stable high income, can afford losses for 5-10 years, and are targeting capital growth markets (Sydney, Melbourne inner suburbs)
- Choose positive gearing if you need immediate cashflow, are risk-averse, or are investing for retirement income (regional high-yield areas)
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8. Is Negative Gearing Right for You?
Negative gearing works best in these scenarios:
✅ Negative Gearing Makes Sense If:
- ✅ You earn $100K+ (ideally $150K+) and pay 37-45% tax
- ✅ You have stable employment with 6-12 months emergency fund
- ✅ You can afford $10K-25K/year out-of-pocket costs
- ✅ You're investing for 10+ years (long-term capital growth)
- ✅ You're buying in established capital growth markets
- ✅ Interest rates are stable or falling
- ✅ You understand the risks and have a backup plan
❌ Avoid Negative Gearing If:
- ❌ You earn under $80K (tax benefit too small)
- ❌ You can't afford to cover losses for extended periods
- ❌ You need immediate cashflow from your investment
- ❌ You're buying in low-growth or oversupplied markets
- ❌ Interest rates are rising sharply
- ❌ You're relying on negative gearing to afford the property
- ❌ You're nearing retirement (cashflow becomes critical)
9. Tracking Expenses for Tax Time
To maximize your negative gearing tax deductions, you must track every deductible expense:
📊 Track These Expenses:
- Loan interest statements (monthly)
- Property management invoices
- Council rates notices
- Strata levy invoices
- Insurance premiums
- Repairs & maintenance receipts (every Bunnings trip!)
- Water, utilities (if landlord-paid)
- Depreciation schedule (from Quantity Surveyor)
- Travel to inspect property (mileage log)
Pro tip: Use digital tools to capture receipts immediately. Missing receipts = missed deductions = higher out-of-pocket costs. With multiple properties, organization becomes critical.
Track Your Rental Properties Efficiently
Managing multiple negatively geared properties? Track expenses, depreciation, and losses across all your investments with property-specific reporting.
Try Rental Calculator →Start Tracking Free →10. Frequently Asked Questions
Can I negatively gear my main residence?
No. Your principal place of residence (the home you live in) cannot be negatively geared. You can only claim rental property deductions on investment properties that generate assessable income. However, you can claim deductions if you rent out part of your home (e.g., a room on Airbnb).
How many properties can I negatively gear?
There's no legal limit. You can negatively gear as many properties as you can afford and banks will lend you money for. However, each additional property increases your risk and cashflow requirements. Most investors cap at 3-5 negatively geared properties before switching to positive cashflow strategies.
What happens when my property becomes positively geared?
As rent increases over time and you pay down the loan, your property may become positively geared (income exceeds expenses). At that point, you'll pay tax on the rental profit instead of claiming a loss. Many investors refinance to buy another property and maintain the tax deductions.
Is negative gearing going to be banned?
Negative gearing reforms have been proposed by various political parties over the years, but it remains legal as of 2026. Any changes would likely be grandfathered (existing properties protected). However, policy risk is real — factor this into your investment decision.
Do I need an accountant for negative gearing?
Strongly recommended. An experienced property accountant will maximize your deductions (depreciation schedules, capital works, repairs vs improvements) and ensure ATO compliance. A good accountant pays for themselves by finding $5K-15K in extra deductions most DIY investors miss.
Can I claim interest on renovations or improvements?
Yes, but with conditions. Interest on loans for repairs & maintenance is deductible immediately. Interest on loans for renovations/improvements must be depreciated over the asset's effective life (often 40 years for structural work). Consult your accountant to structure this correctly.
Final Thoughts
Negative gearing is a powerful wealth-building tool for high-income Australians — but only if property prices grow faster than your losses accumulate. It's not a get-rich-quick scheme; it's a leveraged bet on long-term capital appreciation.
Before diving in, run the numbers, stress-test for interest rate rises, and ensure you have the cashflow to sustain losses for 10+ years. Done right, negative gearing can accelerate your path to financial independence. Done wrong, it can cripple your finances for decades.
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