Negative gearing in Australia is when an investment costs more to hold than it earns, and the tax rules let you subtract that loss from your other income — like your salary — to lower the tax you pay. It is one of the most talked-about and least understood parts of Australian investing, and the tax saving is not free money — it is a real cash-flow loss you are betting will be made up by capital growth. Here is how it works.
What "negatively geared" means
An investment is negatively geared when the income it produces (for a property, the rent) is less than the cost of holding it (loan interest plus expenses like rates, insurance, management and maintenance).
That shortfall is a loss. Australian tax rules let you offset that loss against your other income — like your salary — which lowers your taxable income and therefore your tax.
A worked example
Say you own an investment property:
- Rent received: $25,000 a year.
- Costs: $30,000 loan interest + $5,000 other expenses = $35,000.
- Loss: $35,000 − $25,000 = $10,000.
That $10,000 loss comes off your taxable income. If your marginal rate is 37% plus the 2% Medicare levy, the loss saves you about $3,900 in tax. So your real out-of-pocket cost for the year is roughly $10,000 − $3,900 = $6,100, not the full $10,000.
The Negative Gearing Calculator works this through on your numbers, and the Salary Tax Calculator shows the marginal rate the saving is worth.
The part people forget: it is still a loss
The tax break reduces the pain of the loss — it does not erase it. You are still $6,100 out of pocket in the example. Negative gearing only makes sense if you expect capital growth over time to more than cover those holding costs.
When you sell, that growth is taxed as a capital gain, but if you have held the asset more than 12 months you generally get the 50% CGT discount — see the Capital Gains Tax Calculator. Both the discount and negative gearing itself are changing from 1 July 2027 — see the next section.
What's changing from 1 July 2027
Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49, 2026), assented 26 June 2026, two things in this article change from 1 July 2027:
- Negative gearing is quarantined for some purchases. If you buy an established residential dwelling after 7:30pm AEST on 12 May 2026, net rental losses on it can only offset residential rental income or residential capital gains from 1 July 2027 — not your salary. Anything you already owned before that time, and any new residential dwelling, keeps full negative gearing. What counts as a "new residential dwelling" is not yet defined in law — a legislative instrument is still pending.
- The 50% CGT discount goes for individuals and for trusts other than complying superannuation funds — it survives for new residential dwellings and affordable housing — replaced by CPI cost-base indexation plus a 30% minimum tax top-up, which is extra tax calculated on a defined subset of gains rather than a flat rate on all of them. Gains are split either side of 1 July 2027 by a deemed sale and repurchase at market value, rather than simply switched over.
This is general information about the law, not a suggestion to buy or sell before any date. See the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 for the detail, and confirm your own position with an accountant.
The risks
- Cash flow. You need to fund the shortfall every month, regardless of the tax refund that comes once a year.
- Interest rates. A rate rise increases your loss. Stress-test the holding cost at a higher rate.
- No guaranteed growth. If the asset does not appreciate, you have simply made a loss with a partial tax rebate.
- It is not a strategy by itself. Negative gearing is a tax consequence of borrowing to invest, not a reason to invest.
Before buying, it is worth checking the rental return with the Rental Yield Calculator so you know how big the shortfall is likely to be.
Frequently Asked Questions
No. It reduces your taxable income by the size of the loss, which lowers your tax at your marginal rate. You still bear most of the loss yourself — the tax saving only covers a portion of it.
Your marginal tax rate times the loss. A $10,000 loss saves about $3,900 at a 37% rate plus Medicare, or about $3,200 at 30% plus Medicare.
Not inherently. A positively geared investment makes a profit (and you pay tax on it); a negatively geared one makes a loss you hope capital growth will offset. Which is "better" depends on your goals, cash flow and the asset.
The holding losses you claimed along the way are not clawed back, but the capital gain on sale is taxable — usually with the 50% discount if you held it over 12 months and sell before 1 July 2027 (CPI indexation and a 30% minimum tax top-up apply after that — see "What's changing from 1 July 2027" above).
Any income-producing investment can be negatively geared, not just property. If you borrow to buy shares and the interest and holding costs exceed the dividends, that loss is deductible against your other income the same way. Property is just the most common example because the loans involved are larger.