5Optionally add depreciation if you have a quantity surveyor report
6Select your marginal tax rate to see the after-tax benefit
What Is Negative Gearing?
Negative gearing occurs when the costs of owning an investment property (including loan interest) exceed the rental income it generates. The resulting loss is tax-deductible against your other income, reducing your overall tax bill.
For example, if your rental property costs you $15,000 more per year than it earns, and your marginal tax rate is 34.5%, you receive a $5,175 tax refund — reducing your real out-of-pocket cost to $9,825.
Australia has one of the most generous negative gearing systems in the world. It is commonly used by property investors to reduce taxable income while hoping for long-term capital growth to offset the ongoing losses.
Key Factors to Understand
Loan interest
The largest expense for most investors. On a $640,000 loan at 6.25%, annual interest is $40,000. This is fully deductible against rental income.
Marginal tax rate
The higher your tax rate, the bigger the tax benefit. A 47% taxpayer receives nearly twice the benefit of a 21% taxpayer on the same rental loss.
Depreciation
A non-cash deduction based on the wear and tear of the property and its fittings. A quantity surveyor report can identify $5,000–$15,000+ in annual deductions on newer properties.
Break-even rent
The weekly rent at which your property becomes cash-flow neutral. The after-tax break-even is always lower than the pre-tax figure due to the tax benefit.
Capital growth
Negative gearing is a long-term strategy that depends on capital growth to deliver a profit. The ongoing loss is the price you pay for exposure to property appreciation.
Tips for Property Investors
•Compare the after-tax break-even rent to current market rents in the area — this tells you how sustainable the investment is
•Get a quantity surveyor depreciation report on any property built after 1985 — it can significantly improve your after-tax position
•Interest rates move — use the scenario comparison feature to model your cash flow at rates 1–2% higher
•Positive gearing is more tax-efficient at lower income levels; negative gearing provides the most benefit at the top marginal rate
•Consider LMI cost recovery time when borrowing above 80% LVR on an investment property
•Track your rental income and expenses with our Expense Tracker for a clean EOFY report