Positive Gearing

Definition

Positive gearing occurs when the rental income from a property exceeds all ownership costs (mortgage interest, rates, insurance, maintenance, depreciation). The surplus is taxable income. Positively geared properties are cash-flow positive from day one, meaning they pay for themselves without requiring top-ups from the owner's other income.

While negative gearing gets the headlines, positive gearing is the end goal for most investors — a property that generates passive income. Regional properties and those with low debt often become positively geared. The trade-off is higher annual tax, but the cash-flow security is valuable, especially approaching retirement.

Your rental income is $32,000/year. Total costs (including depreciation) are $26,000. The $6,000 surplus is added to your taxable income. At a 37% marginal rate, you pay $2,220 extra tax but keep $3,780 net.

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