Negative Gearing

Definition

Negative gearing occurs when the total costs of owning a rental property (mortgage interest, rates, insurance, maintenance, depreciation) exceed the rental income it generates. The resulting loss can be offset against your other taxable income — such as salary or wages — reducing your overall tax bill. It's one of Australia's most-used property investment strategies.

Negative gearing effectively means the ATO subsidises part of your holding costs while you wait for capital growth. For high-income earners in the 37% or 45% tax brackets, the tax refund from a negatively geared property can significantly reduce out-of-pocket costs. However, negative gearing only works if the property appreciates enough to offset the annual losses.

Your rental income is $28,000/year. Your expenses (interest, rates, insurance, depreciation) total $42,000. The $14,000 loss is deducted from your $120,000 salary, reducing your taxable income to $106,000 and saving you $5,180 in tax (at 37%).

ITAA 1997, Section 8-1 — View on ato.gov.au →

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