How Negative Gearing Works in Australia
Negative gearing is one of the most powerful (and most misunderstood) tax strategies available to Australian property investors. In simple terms, when your investment property expenses exceed the rental income, the resulting loss reduces your taxable income from other sources -- like your salary.
For example, if you earn $120,000 in salary and your investment property generates a $15,000 net loss, your taxable income drops to $105,000. At the 37% marginal tax rate (which applies to income between $90,001 and $190,000 in 2024-25), that $15,000 loss saves you $5,550 in income tax plus $300 in Medicare levy -- a total tax benefit of $5,850.
What Expenses Can You Claim?
Deductible expenses include mortgage interest (not principal repayments), council rates, water rates, landlord insurance, property management fees (typically 6-10% of rent), repairs and maintenance, pest inspections, advertising for tenants, legal fees, and travel to inspect the property. Depreciation of the building structure (Division 43) and plant and equipment (Division 40) are non-cash deductions that increase your paper loss without costing you actual money.
Australian Tax Brackets (2024-25)
Understanding your marginal tax rate is essential because it determines how much you save per dollar of property loss. The current brackets are: 0% on income up to $18,200, 16% on $18,201-$45,000, 30% on $45,001-$135,000, 37% on $135,001-$190,000, and 45% on income above $190,000. The 2% Medicare levy applies on top.
Is Negative Gearing a Good Strategy?
Negative gearing reduces your tax bill, but it does not eliminate losses entirely. You are still out of pocket -- just less so than without the tax benefit. The strategy makes sense when you expect strong capital growth that more than compensates for the ongoing cash loss. It is less attractive in flat or declining markets where you lose both cash flow and equity.
Use our Depreciation Calculator to estimate non-cash deductions, and the Cash Flow Calculator to see your actual weekly out-of-pocket position after tax benefits.