Negative gearing is one of the most discussed — and most misunderstood — concepts in Australian property investment. Many investors buy negatively geared properties expecting significant tax savings, only to discover the actual benefit is far smaller than anticipated. This guide explains exactly how negative gearing works, what it actually saves you, and when it makes sense as a strategy.
What Is Negative Gearing?
A property is negatively geared when the costs of owning it — including mortgage interest, rates, insurance, management fees and maintenance — exceed the rental income it generates. The resulting loss can be offset against your other income (such as your salary) to reduce your overall tax liability.
How Negative Gearing Works — A Real Example
| Item | Annual Amount |
|---|---|
| Rental income | $28,000 |
| Mortgage interest | $38,000 |
| Rates, insurance, management, maintenance | $8,000 |
| Total costs | $46,000 |
| Net rental loss (negative gearing amount) | $18,000 |
| Tax saving at 37% marginal rate | $6,660 |
| Actual out-of-pocket annual cost after tax benefit | $11,340 |
Is Negative Gearing Worth It?
Negative gearing only makes sense if the property’s capital growth exceeds the ongoing out-of-pocket costs over time. The tax benefit alone rarely justifies the investment — it reduces your loss but does not eliminate it. A negatively geared property in a flat or declining market will cost you money every year without the capital growth to compensate.
Negative Gearing vs Positive Gearing — Key Differences
| Negative Gearing | Positive Gearing | |
|---|---|---|
| Rental income vs costs | Costs exceed income | Income exceeds costs |
| Monthly cashflow | You pay money every month | Property pays you every month |
| Tax treatment | Loss offsets your income | Profit is added to your income |
| Growth requirement | High — needs capital growth to justify | Lower — cashflow is immediate |
| Best suited to | High-income earners in growth suburbs | Investors wanting cashflow now |
When Does Negative Gearing Make Sense?
- You are a high-income earner (45% marginal rate) — the tax benefit is larger
- The property is in a high-growth suburb where capital gains will exceed carrying costs
- You plan to hold for 10+ years to allow growth to compound
- You can comfortably service the monthly shortfall without financial stress
When Negative Gearing Does Not Make Sense
- You are on a low or middle income — the tax benefit is minimal
- The property is in a low-growth area — you are simply losing money
- You need cashflow now — negative gearing creates ongoing out-of-pocket costs
- Interest rates rise significantly — increasing your loss without increasing the tax benefit proportionally
Frequently Asked Questions
Can I negative gear an investment property in an SMSF?
Yes, but the tax benefit is less valuable in an SMSF because the fund’s tax rate is 15% (compared to your marginal rate of up to 45% personally). Positive gearing is often more appropriate for SMSF property investment.
Is negative gearing being abolished in Australia?
As of 2026, negative gearing remains fully available for all investment properties in Australia. Changes to the policy have been debated politically but no changes have been legislated.
How do I know if my investment property strategy is right for me?
Collings Property Advisory provides independent investment property analysis including cashflow modelling, yield analysis and suburb selection guidance — for a fixed fee of $4,500 + GST.
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