How Negative Gearing Works
Your rental property earns $30,000/year in rent. Your expenses (mortgage interest, council rates, insurance, management fees, depreciation) total $40,000. The $10,000 loss is deducted from your other income — your salary, business income, or investment income.
Example
| Amount | |
|---|---|
| Rental income | $30,000 |
| Expenses (interest, rates, insurance, depreciation) | −$40,000 |
| Net rental loss | −$10,000 |
| Your salary | $100,000 |
| Taxable income after loss | $90,000 |
| Tax saving (at 32.5% marginal rate + 2% Medicare) | ~$3,450 |
Is Negative Gearing Worth It?
You're spending $10,000 to save $3,450 in tax — you're still out of pocket $6,550. Negative gearing only makes sense if: (a) the property increases in value over time (capital growth), and (b) the capital growth plus tax savings exceed what you'd earn investing the same money elsewhere.
It's not a "free money" strategy — it's a bet on property price growth. If your property doesn't grow in value, you've just lost money with a smaller tax bill.
Frequently Asked Questions
Is negative gearing a good strategy?
It depends on capital growth. You're losing money on the property now, hoping to make it back through price increases when you sell. If prices don't grow, you've just lost money. Get financial advice specific to your situation.
Will negative gearing be abolished?
It's been debated for years but remains in place. Any changes would likely be grandfathered (existing properties protected). There's no current legislation to remove it.