Negative Gearing
Calculator AU 2026

Negative gearing occurs when the costs of holding an investment property (interest on loan + repairs + property management + council rates + insurance + depreciation) exceed the rental income. The loss reduces your overall taxable income, lowering your income tax bill at your marginal rate. The strategy works only if expected long-term capital growth + tax savings exceed cumulative cash losses. ATO statistics: ~1.1 million Australians (about 8% of taxpayers) reported a net rental loss in 2021-22, with average loss ~$5,500. Negative gearing is permitted under sections 8-1 and 25-25 of the Income Tax Assessment Act 1997 — the deductibility of loan interest and rental expenses against other income.

Two depreciation categories under the Income Tax Assessment Act 1997: (1) Division 43 Capital Works — the building structure depreciated at 2.5% per year over 40 years (or 4% over 25 years for some industrial buildings). Available only for buildings constructed AFTER 16 September 1987 (residential). The construction cost — not the property's market value — is what's depreciated. A new $400,000 build = $10,000/year for 40 years. (2) Division 40 Plant & Equipment — items like air conditioning, carpet, blinds, dishwashers, ovens. Depreciated using effective life. Important: Treasury Laws Amendment 2017 removed Div 40 deductions for SECOND-HAND residential plant — i.e., when an investor buys an existing property, they can NOT depreciate any pre-existing plant items, only new replacements they install.

Common deductible expenses (deductible in the year incurred, against rental income and other income): (1) Interest on the investment loan (principal repayments are NOT deductible). (2) Property management fees (5-10% of rent typically). (3) Council rates and water rates. (4) Strata/body corporate fees. (5) Land tax. (6) Building and contents insurance. (7) Cleaning, gardening, pest control. (8) Repairs and maintenance (immediate deduction). (9) Quantity surveyor fees for depreciation schedule. (10) Travel — REMOVED for residential property post-1 July 2017 (still claimable for commercial). (11) Loan establishment fees, broker fees, mortgage discharge fees — borrowing costs deductible over 5 years or loan term, whichever is shorter. CAPITAL improvements (renovations, extensions) are NOT immediately deductible — they form part of cost base for CGT.

When you sell an investment property held >12 months as an individual or trust, only 50% of the capital gain is added to your assessable income (post-loss-offset). The discount is half-removed for non-residents on assets acquired after 8 May 2012 and unavailable for companies. SMSFs receive 33.33% discount (1/3). Cost base for CGT = purchase price + buying costs (stamp duty, legal fees) + capital improvements + selling costs (agent, legal, advertising) − depreciation claimed (cost base reduction). Capital losses on the property can offset capital gains, with unused losses carried forward indefinitely against future capital gains only (not income).

Negative gearing: rental expenses > rental income → loss reduces taxable income at marginal rate. Common in high-growth, low-yield markets (Sydney, Melbourne inner-ring). Neutral gearing: rental expenses ≈ rental income → no loss, no profit, no tax effect. Positive gearing: rental income > rental expenses → profit added to taxable income. Common in regional areas and mining towns where yields are 6-9% but capital growth is lower. Strategy depends on your tax bracket: higher-rate taxpayers benefit more from negative gearing's tax shield; lower brackets often prefer positive gearing for cash-flow stability. The strategy chosen also affects loan structure (interest-only vs principal+interest).

Yes — multiple times. Labor's 2016 and 2019 election platforms proposed restricting negative gearing to NEW (newly built) properties only and reducing the CGT discount from 50% to 25%. Both elections were lost. The 2024 Treasury review explored housing affordability impacts of negative gearing without recommending change. Independent modelling (Grattan Institute, McKell Institute) consistently estimates restrictions would save the federal budget $3-7 billion per year and modestly increase home ownership rates. Current bipartisan position (as of 2025-26): no immediate change. Policy risk is real but historically slow to materialise. Investors generally model 5-10 year holding periods to spread this risk.

Interest-only (IO) loans maximise the tax-deductible interest portion of repayments while keeping principal stable — increasing the negative-gearing tax benefit. APRA and ASIC tightened IO lending standards from 2017 onwards: typical IO term capped at 5 years (sometimes 10), then converts to principal+interest (P+I), and IO portfolio share at lenders capped. Owner-occupier IO loans are very rare; investment IO loans are still common but with tighter serviceability checks. Max LVR: typically 80% for IO investment, vs 95% P+I owner-occupier. IO interest rates carry a premium of 0.20-0.50 percentage points above P+I. Long-term, P+I builds equity faster — the tax benefit of IO is partially offset by higher rates.

Tax saving from a $20,000 rental loss varies by bracket (FY 2025-26): 16% bracket (income $18,201-$45,000) → $3,200 saved. 30% bracket ($45,001-$135,000) → $6,000 saved. 37% ($135,001-$190,000) → $7,400 saved. 45% (>$190,001) → $9,000 saved. Plus 2% Medicare levy → 32%/39%/47% effective. Higher-bracket taxpayers gain proportionally more from negative gearing — which is why ATO data shows 60% of investment-property losses are claimed by taxpayers in the top two tax brackets. Strategy implication: those in low brackets often benefit more from positive-gearing or capital-growth-focused strategies, while high earners prioritise negative-gearing's marginal-rate tax shield.

Holding-period considerations (factual, not advice): (1) >12 months: 50% CGT discount activates (s.115-25 ITAA 1997). (2) 5-7 years: covers 1-2 property cycles in most Australian capitals; smooths out short-term volatility. (3) 10+ years: typically achieves meaningful capital growth in growth markets after compounding. (4) Round-trip costs are significant: stamp duty (3-5%), agent fee (2-3%), legal fees, bank fees, mortgage discharge — selling within 3-5 years often results in capital loss net of round-trip costs even with paper gain. ATO data shows median hold for investor-resold properties is approximately 8 years. The cumulative cash-flow impact of negative gearing also evens out as rents typically grow ~3-4% p.a. while interest cost remains fixed (or falls during refinance) — many properties become neutral or positive after 5-8 years.

ATO requires retention for at least 5 years after the income tax return is lodged (longer if affecting CGT — typically 5 years post-disposal). Essential records: (1) Settlement statement and contract of sale. (2) Quantity surveyor's depreciation schedule (one-off cost ~$700, deductible). (3) All loan statements showing interest paid, plus any redraws (redraw for personal use can taint deductibility). (4) Annual property manager statements. (5) Receipts for repairs, maintenance, insurance. (6) Council rates and water rates notices. (7) Body corporate / strata fees. (8) For travel pre-1-Jul-2017 (residential) or all years (commercial) — logbook + receipts. (9) Capital improvement receipts (form CGT cost base). (10) Land tax assessments by state. Software like CG-Reno, BMT Tax Depreciation, and platforms like Property Tree help systematise records.