Negative Gearing
Explained: Australia 2026
Over 2 million Australians use negative gearing. Is it worth it? This guide shows exactly how it works, with real numbers at every tax bracket.
1. How Negative Gearing Works
Negative gearing is simple: your investment property costs more to hold than it earns in rent. The "loss" reduces your taxable income from your salary.
Example: $600K Investment Property
Rental income: $26,000/year ($500/week)
Expenses: mortgage interest ($31,200 at 5.2% on $600K), rates ($2,500), insurance ($1,800), management ($2,080), maintenance ($2,000), depreciation ($5,000)
Total expenses: $44,580
Annual loss: -$18,580 → deducted from your salary income
2. Tax Savings by Bracket
The higher your marginal tax rate, the more valuable the tax deduction.
| Taxable Income | Marginal Rate | Tax Saved on $18.5K Loss | True Cost |
|---|---|---|---|
| $18,201 – $45,000 | 15% | $2,787 | $15,793 |
| $45,001 – $135,000 | 30% | $5,574 | $13,006 |
| $135,001 – $190,000 | 37% | $6,875 | $11,705 |
| $190,001+ | 45% | $8,361 | $10,219 |
FY2026-27 marginal rates, Medicare levy excluded (it phases in from about $28,011, so a flat 2% would overstate the saving in the lowest band — the calculator above adds it where it applies). True cost = annual loss minus tax saving. Higher bracket = lower true cost. Returns for FY2025-26 lodged now still use the old 16% bottom rate.
3. Deductible Expenses
You can claim these costs against your rental income:
Mortgage Interest
On the investment loan only — not principal repayments
Depreciation (Building)
2.5% per year for buildings constructed after September 1987
Depreciation (Fittings)
Carpet, blinds, appliances, hot water — diminishing value method
Council & Water Rates
Annual council and water rates for the property
Property Management
6-8% of rent if using a property manager
Landlord Insurance
Covers tenant damage, loss of rent, liability
Repairs & Maintenance
Fixing existing items (not improvements — those are capital costs)
Accounting Fees
Cost of preparing rental income tax return
4. The Capital Growth Equation
Negative gearing only makes sense if capital growth exceeds your after-tax holding cost. Here's what that looks like:
5-Year Scenario: $600K Property at 5% Annual Growth
Value at year 5: $765,769 → Capital gain: $165,769
After 50% CGT discount (37% bracket): CGT payable ~$30,667
Total holding costs over 5 years (after tax savings): ~$58,525
Net profit after CGT and holding costs: ~$76,577
Effective annual return on your cash outlay: ~26%/year (leveraged)
The risk: if capital growth is 0-2%, negative gearing becomes a genuine loss. You're paying real money to hold an asset that isn't appreciating. Location selection is critical.
5. When to Avoid Negative Gearing
- Low tax bracket ($45K or under) — The tax saving is only 15% in FY2026-27 (and falls to 14% from 1 July 2027), so your true out-of-pocket cost stays high
- No capital growth potential — If the area has flat or declining property values, the tax saving won't compensate for the holding cost
- Cash flow stress — The property loss comes out of your budget every week. If you can't comfortably absorb $200-400/week, consider positive gearing (where rent exceeds costs)
- You are buying an established home now — Reform is no longer hypothetical. Established dwellings acquired after 7:30pm AEST on 12 May 2026 lose the ability to offset rental losses against salary from 1 July 2027. See §6 for exactly what changed.
6. Is negative gearing changing? Yes — the 2026 reform is now law
Negative gearing reform stopped being hypothetical in 2026. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026) passed Parliament on 25 June 2026 and received Royal Assent. It does not change anything you claim this year — the new rules commence 1 July 2027 — but the cut-off date that decides which rules you fall under has already passed.
What the Act actually does (from 1 July 2027)
- Established homes bought after 7:30pm AEST on 12 May 2026 (Budget night) can no longer have rental losses deducted against salary and wages. Losses are quarantined to residential property income and carried forward to future years.
- Properties held before that moment are grandfathered — including contracts entered before Budget night. They keep negative gearing under the existing rules.
- New builds keep full negative gearing, which is the point of the reform: shift the tax support toward new supply.
- The 50% CGT discount is replaced by a cost-base indexation method plus a 30% minimum tax rate on net capital gains. It applies only to gains accruing after 1 July 2027 — a deemed disposal and reacquisition on that date resets cost bases. New residential dwellings and affordable housing can elect to keep the 50% discount.
Everything on this page still describes the rules in force today. For the 2026-27 income year nothing has changed: rental losses remain fully deductible against other income, and the 50% CGT discount still applies. The reform matters now for one reason — whether a property you buy is on the grandfathered side of 12 May 2026, and whether it is established or new.
For how grandfathering works mechanically, the 1985–87 Hawke-era restriction, and the 2016 and 2019 Labor proposals this reform resembles, see our grandfathering negative gearing explainer.
What this means if you're buying now: an established investment property bought today is on the post-cut-off side and will lose salary offsetting from 1 July 2027 — model it on rental income alone, not on the tax refund. A new build keeps both concessions. Either way a property bought for tax reasons can still underperform on fundamentals, so decide on yield, location, cash flow, and your horizon. For the upfront costs, our stamp duty calculator covers state-by-state duty; for ongoing repayments, the mortgage calculator handles principal + interest at current rates.
7. Negative Gearing vs Positive Gearing
| Factor | Negative Gearing | Positive Gearing |
|---|---|---|
| Cash flow | Negative (you pay each week) | Positive (rent exceeds costs) |
| Tax effect | Reduces taxable income | Increases taxable income |
| Capital growth focus | High — relies on appreciation | Lower — income-focused |
| Risk | Higher — needs growth to profit | Lower — cash flow positive |
| Best for | High-income earners, growth areas | Any bracket, regional/high-yield areas |
Last updated 29 July 2026 — refreshed for the FY2026-27 tax rates (bottom band cut to 15% from 1 July 2026) and for the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent in 2026 and commences 1 July 2027.
Sources: ATO — individual income tax rates and rental property deductions; ATO new-legislation guidance, “Tax reform — boosting home ownership: reforming negative gearing and capital gains tax”; Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49, 2026); Australian Government Budget 2026-27 tax reform materials (announcement 7:30pm AEST, 12 May 2026).
General information only, not financial or tax advice. Richify holds no AFSL. Figures are illustrative; confirm your own position with the ATO or a registered tax agent.
Calculate Your Property's True Cost
Our negative gearing calculator shows your exact tax saving, true out-of-pocket cost, and capital growth projection — personalised to your salary and property.
❓ Frequently Asked Questions
What is negative gearing in Australia?
Negative gearing means owning an investment property where the costs (mortgage interest, maintenance, depreciation, insurance, council rates) exceed the rental income. The resulting 'loss' is deducted from your other taxable income (salary, wages), reducing your overall tax bill.
It's a tax strategy used by over 2 million Australian property investors.
Is negative gearing worth it in 2026?
It depends on your marginal tax rate and capital growth expectations. On a $120,000 taxable income the marginal rate is 30% in FY2026-27 (32% with the 2% Medicare levy), so a $10,000 annual property loss saves about $3,200 in tax — a true out-of-pocket cost of roughly $6,800.
Above $135,000 the marginal rate steps up to 37% (39% with the levy) and the same loss saves about $3,900. If the property appreciates by 5%+ per year, the capital gain (currently taxed with a 50% CGT discount) may far exceed your annual out-of-pocket cost.
Note that for established properties bought after 12 May 2026, this salary offset ends on 1 July 2027.
Are negative gearing rules changing?
Yes — and it is now law, not a proposal. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed Parliament on 25 June 2026 and commences 1 July 2027.
From that date, established residential properties acquired after 7:30pm AEST on 12 May 2026 can no longer offset rental losses against salary and wages: losses are quarantined to residential property income and carried forward. Properties held before that moment are grandfathered and keep the current rules, and new builds keep full negative gearing.
The 50% CGT discount is also replaced from 1 July 2027 by cost-base indexation with a 30% minimum tax rate on net capital gains. Nothing changes for the 2026-27 income year — the rules described on this page are the rules in force today.
What costs can you claim under negative gearing?
Deductible expenses include: mortgage interest (not principal), council rates, water rates, strata fees, property management fees (6-8% of rent), insurance, repairs and maintenance, depreciation on building (2.5%/yr for post-1987) and fittings (diminishing value method), travel to inspect (limited), accounting fees.
What is the 50% CGT discount?
If you hold an investment property for 12+ months before selling, you only pay capital gains tax on 50% of the gain. Example: buy at $500K, sell at $700K after 5 years.
Gain = $200K. Taxable gain = $100K (50% discount).
At a 37% marginal rate, CGT = $37,000 — an effective rate of 18.5% on the full gain (before the Medicare levy). This is still the law for the 2026-27 income year, but from 1 July 2027 the 50% discount is replaced by cost-base indexation plus a 30% minimum tax rate on net capital gains, applying only to gains that accrue after that date.
New residential dwellings and affordable housing can elect to keep the 50% discount.
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