How Negative Gearing Works in Australia
A property is negatively geared when the rental income is less than the total deductible expenses — interest, rates, insurance, management fees, repairs, and depreciation. The shortfall is a tax loss that offsets your other income (like your salary), reducing your overall tax bill. The higher your marginal tax rate, the greater the benefit.
For example: if your property runs at a $15,000 annual loss and your marginal rate is 37%, you save $5,550 in tax. Your after-tax cost is just $9,450/year — about $182/week out of pocket — while you potentially benefit from the property appreciating in value.
2025–26 Marginal Tax Rates (incl. Medicare levy)
| Taxable Income | Marginal Rate + Medicare | Tax saving per $1,000 loss |
|---|
| $0 – $18,200 | 0% | $0 |
| $18,201 – $45,000 | 18% | $180 |
| $45,001 – $135,000 | 32% | $320 |
| $135,001 – $190,000 | 39% | $390 |
| $190,001+ | 47% | $470 |
Frequently Asked Questions
Is negative gearing still allowed in Australia?▾
Yes. As of 2025–26, negative gearing remains fully available for investment properties in Australia. The tax offset applies at your marginal rate for all existing and new residential and commercial properties. There have been political proposals to limit negative gearing to new properties only, but no such change has been legislated.
What expenses can I deduct from a rental property?▾
Deductible expenses include: loan interest (not principal repayments), council rates, water rates, land tax, property management fees (typically 7–10% of rent), landlord insurance, repairs and maintenance (not capital improvements), depreciation on plant and equipment, and capital works (Division 43 at 2.5%/year). You cannot deduct your own time spent managing the property.
What is the 50% CGT discount and why does it matter for negative gearing?▾
If you sell an investment property held for 12+ months, you only pay CGT on 50% of the profit. This makes the negative gearing strategy particularly powerful: you get full tax deductions at your marginal rate while holding (reducing your after-tax cost), then only pay tax on half the capital gain when you sell. The strategy is essentially a bet that capital growth will outweigh your ongoing carrying cost.
Does negative gearing affect my home loan borrowing capacity?▾
It depends on whether the property is positively or negatively geared. Lenders typically count rental income at 70–80% (to account for vacancies and costs). If the rental income is less than the loan repayments (negatively geared), it increases your overall debt commitments and can reduce how much you can borrow for your home. If positively geared, it can increase your borrowing capacity.
Is positive gearing better than negative gearing?▾
It depends on your goals and tax rate. Positive gearing gives you income now but you pay tax on the profit. Negative gearing costs money weekly but provides tax deductions — you are betting on capital growth to profit long-term. Investors on higher marginal rates benefit more from negative gearing. Lower-income investors often do better with positively geared properties in high-yield markets.