Negative Gearing Formula
Net Gearing Position
Tax Saving Calculation
Out-of-Pocket Reality
Negative gearing does not make a loss profitable — it just makes the loss smaller. Sarah is still out of pocket $11,054 after the tax benefit.
Depreciation Impact on Cash Flow
Depreciation Schedule
Depreciation is a non-cash deduction, meaning it improves your tax position without requiring you to spend additional money. A quantity surveyor's report typically costs $600-$800 and can identify tens of thousands of dollars in deductions over the life of the property.
Leverage Effect
Annual Losses
This cannot be overstated. Negative gearing means you are losing real money every year and relying on future capital growth to make up for it. If growth does not materialise, you have simply lost money.
Cash Flow Neutral Target
Target properties that are roughly break-even after tax. You get exposure to capital growth without the pressure of funding a significant shortfall. This sweet spot is achievable in many Australian markets with the right property selection.
- You are in a high tax bracket (30% or above) — the tax savings are meaningful
- You can comfortably fund the shortfall without financial stress
- The property has strong capital growth prospects backed by fundamentals (not speculation)
- Your investment horizon is long (minimum 7-10 years)
- You understand and accept the risks, including the possibility that growth may not materialise
