Key takeaways
- A property is negatively geared when its running costs exceed the rent, producing an annual loss.
- That loss can generally be offset against your other income, reducing your tax.
- The strategy only builds wealth if the property’s capital growth outweighs the losses you fund.
- It suits investors with stable income who can comfortably carry the shortfall long term.
Negative gearing gets talked about as if it’s a magic tax trick. It isn’t. Stripped of the noise, it’s simple: you own a property that costs more to hold than it earns, you claim that loss against your income, and you’re betting the property grows enough to make the whole exercise worthwhile. Understanding each of those pieces — and being honest about the bet — is what separates a good investment from an expensive one.
How it works
Add up what an investment property costs you each year: loan interest, council rates, insurance, property management, repairs, strata. Compare that to the rent. When the costs are higher, the property runs at a loss — it’s negatively geared. Australian tax rules generally let you offset that loss against your other taxable income, so your tax bill falls. In effect, the tax system shares part of the annual shortfall with you.
A tax deduction is not free money — it only ever gives you back a fraction of a dollar you actually spent. Negative gearing makes holding a growing asset more affordable; it never turns a bad purchase into a good one. The property has to grow.
Negative vs positive gearing
Positively geared property earns more rent than it costs — you make an income each year but pay tax on it. Negatively geared property costs more than it earns — you fund a loss each year but reduce your tax and rely on capital growth. Higher-income investors often lean negative (the deductions are worth more and they can carry the shortfall); investors focused on cash flow often prefer positive. There’s no universally right answer.
The risks worth naming
- No growth, no point. If prices stall, the tax benefit just trims a real loss.
- Cash flow pressure. You must fund the shortfall every month, through vacancies and rate rises alike.
- Rate sensitivity. Because interest is the biggest cost, rising rates deepen the loss — which is why your fixed-vs-variable choice matters for investors.
- Policy risk. Tax settings can change; a strategy that leans entirely on them is fragile.
Structuring the loan matters as much as the property
For investors, how the loan is set up — interest-only periods, offset accounts, avoiding cross-collateralisation, and preserving deductibility — can matter as much as the property itself. It also feeds directly into your borrowing power for the next purchase. Getting the structure right from the start is far easier than unwinding it later, and it’s where good advice pays for itself.
Broker Insight. We always caution clients not to buy for the tax break alone. Negative gearing can support a sound investment, but a loss is still a loss — the property has to make sense on its own.
Structure your investment loan properly from day one
We’ll help you compare lenders, set the loan up for tax efficiency and future purchases, and keep your borrowing power intact. Free, no obligation — and we’ll always suggest speaking to your accountant on the tax specifics.
Book your free game plan callFrequently asked questions
What does negatively geared mean?
A property is negatively geared when the cost of owning it — loan interest, rates, management, maintenance — is more than the rent it earns, so it runs at a loss. In Australia that loss can generally be offset against your other income at tax time, reducing the tax you pay. You’re funding a shortfall each year in the expectation that the property grows in value enough to more than make up for it.
Is negative gearing worth it?
Only if the property grows in value. Negative gearing softens the cost of an annual loss through tax, but it doesn’t create wealth on its own — the capital growth does. If the property doesn’t rise enough, the tax benefit just reduces the size of a genuine loss. It works best for investors with stable income who can comfortably fund the shortfall and hold for the long term.
What’s the difference between negative and positive gearing?
Positive gearing means the rent covers all the costs and leaves a profit — you earn income each year but pay tax on it. Negative gearing means the costs exceed the rent — you fund a loss each year but reduce your tax and bet on growth. Neither is automatically better; it depends on your income, cash flow and goals.
This guide is general information only and does not take your personal circumstances into account. It is not financial or credit advice. Government schemes, lender policies, rates and tax rules change over time and eligibility criteria apply. Speak with us for advice tailored to your situation.