Negative gearing is one of the most talked-about terms in Australian property. It describes an investment property that costs more to hold each year than it earns in income. Here is how it works, a simple example, and the questions to ask before relying on it.
A property is negatively geared when its deductible costs, such as loan interest, rates, insurance, management fees and repairs, are higher than the rent it earns. Under current Australian tax rules, that net rental loss can generally be offset against your other taxable income, such as your salary, which may reduce the tax you pay.
Say a property earns $28,000 in rent for the year, and the deductible costs (including $30,000 of interest) total $38,000. The property has a net rental loss of $10,000. That loss may reduce your taxable income by $10,000. The tax saving depends on your marginal tax rate, but you are still $10,000 out of pocket before tax, so the strategy relies on the property growing in value over time.
Because negative gearing depends on the gap between income and costs, it pays to know each property’s real cash flow. Tracking rent, interest and expenses through the year helps you spot changes early and have better-informed conversations with your accountant.
Property Folio AI keeps your rent, loan interest and expenses in one place, so you can see the cash flow of each property and your whole portfolio at a glance.
Start your 30-day free trialYes. Under current tax rules, net rental losses can generally be deducted against other income. Rules can change, so check the latest ATO guidance or speak with a registered tax agent.
In cash terms, yes, each year the property costs more than it earns. Investors accept this expecting tax savings and capital growth, but growth is not guaranteed.
Yes. As rents rise and the loan is paid down, many properties move from negative to neutral or positive gearing over time.
This article is general information only and is not financial, tax or legal advice. Consider speaking with a licensed professional about your circumstances.
