Negative Gearing Explained: A Complete Guide for Investors In Australia

If you’re new to property investing, you’ve probably heard the term negative gearing. But what does it really mean? Is it good or bad, and who benefits most?

This guide, written by an expert mortgage broker in Brisbane, explains negative gearing in plain English. We’ll show you how it works with real examples, plus the benefits, risks, and impact on the housing market.

At Hunter Galloway, we’ve helped thousands of Australians build property strategies. By the end, you’ll know if negative gearing could play a role in your investment journey.

Let’s dive in

According to the Australian Taxation Office (ATO), negative gearing occurs when your rental income is less than your deductible expenses, including interest on borrowings.1 This creates a net rental loss, which can then be used to reduce your other taxable income, such as your salary.1 In simple terms, you are spending more to hold the property than you earn in rent, with the strategic goal of achieving long-term capital growth.

Investors use negative gearing to lower their annual tax bill. They also aim to build wealth over time. This approach can free up cash flow for future property investments.

Negative gearing often depends on property value growth. Investors accept short-term losses for long-term gains. If the property appreciates, it can outweigh earlier losses.

Negative gearing explains why investors tolerate early losses for future financial benefits.

Understanding the difference between negative and positive gearing helps investors make smarter property decisions. Each strategy suits different financial goals. Here is a simplified comparison of the two strategies:

You can also try a positive or negative gearing calculator to determine which strategy fits your goals.

Let’s walk through a practical example of how negative gearing works, using a hypothetical investor named Sandra.

First, we calculate Sandra’s total annual expenses and compare them to her rental income.

This gives her a rental shortfall of $17,600 ($45,600 – $28,000). This shortfall is her negatively geared loss.

Now, we see how this loss reduces her tax bill. Sandra earns a $90,000 salary. She can subtract the $17,600 rental loss from her taxable income, which brings her new taxable income down to $72,400.

Because her new taxable income falls within the 30% marginal tax bracket (based on 2024-2025 tax rates), her tax saving is calculated as:

$17,600 (rental loss) x 0.30 (marginal tax rate) = $5,280.

This is the amount her annual tax bill is reduced by.

The benefit of negative gearing is greater for those on higher incomes. Here are the official ATO tax rates for 2024-2025:

Note: These rates do not include the 2% Medicare levy.

Finally, let’s look at the real-world impact on Sandra’s monthly finances.

Claiming the right expenses is crucial for managing your investment property’s cash flow. However, the Australian Taxation Office (ATO) has a fundamental rule that governs all deductions: **the property must be rented or genuinely available for rent.

This means it must be actively and broadly advertised, with reasonable rent and conditions, to attract tenants.

Expenses are divided into two main categories:

These are ongoing costs related to managing the property and earning rental income. They can be claimed in the same financial year they are paid.

Examples include:

These are typically larger, capital-related costs whose value is deducted over time.

Examples include:

The ATO makes a critical distinction between repairs and improvements:

Repairs: Work to fix wear and tear or damage that occurred as a result of renting out the property (e.g., replacing a broken window). These are immediately deductible.

Improvements: Work that makes something better than it was originally or changes its character (e.g., renovating an entire kitchen). These are capital works and must be claimed over time.

Depreciation is a non-cash deduction for the decline in value of the building (capital works) and its fittings (plant and equipment).

While this reduces your taxable income each year, any amount claimed as a capital works deduction reduces the property’s cost base when you sell it.

This means your taxable capital gain will be larger. In effect, you get a tax benefit now but may pay more Capital Gains Tax later.

Negative gearing offers several advantages for Australian property investors. While it carries risks, the potential benefits can be significant when managed wisely.

One of the biggest benefits of negative gearing property is the ability to reduce taxable income.

Negative gearing can also support cash flow management.

Most investors use negative gearing with a long-term strategy in mind.

Negative gearing often benefits high-income earners the most. Why? Because the tax savings increase with higher taxable incomes. A high-income professional can offset larger losses and reduce their overall tax bill significantly.

Middle-income investors also use negative gearing, but the benefits are smaller. Their tax deductions are lower, so the strategy may not deliver the same financial impact.

Property investors gain a clear advantage from negative gearing. They can grow portfolios while using tax benefits to offset rental losses. This makes it easier to compete in the housing market.

First-home buyers, however, often face tougher conditions. They compete with investors who enjoy these tax breaks. As a result, property prices can rise faster, making it harder for buyers to enter the market.

Renters feel the indirect effects of negative gearing. Supporters argue it boosts housing supply, keeping rental options available. Critics say it drives property prices higher, which eventually flows into rental costs.

In short, negative gearing supports investors—especially those on higher incomes—while creating mixed outcomes for first-home buyers and renters.

While negative gearing can provide tax savings, it also carries real risks. Investors should understand these downsides before committing.

Negative gearing relies heavily on long-term property value growth.

This reliance makes timing and location critical for success.

Two major risks can directly impact your cash flow:

Both risks can stretch your finances and force you to dip into savings.

Many critics argue that negative gearing reduces housing affordability.

For this reason, some see why negative gearing is bad for broader housing policy.

Negative gearing isn’t suitable for every investor. It works best when you manage cash flow, plan for risks, and invest for long-term growth.

Negative gearing doesn’t exist by accident. It forms part of Australia’s broader tax framework, designed to encourage property investment.

The tax system allows investors to deduct investment losses from their taxable income.

Negative gearing has been part of the tax system for decades.

It first became popular in the 1980s as property investment grew. In 1985, the government briefly removed full negative gearing benefits.

Rents rose sharply in some cities, leading to public backlash. By 1987, negative gearing returned in its current form. Since then, it has remained a core feature of the Australian tax landscape, despite repeated calls for reform.

Despite its advantages, negative gearing remains one of Australia’s most debated tax policies.

Negative gearing shapes both individual investment strategies and Australia’s wider housing market. Understanding its role in the tax system helps you see the bigger picture—not just the personal impact.

While negative gearing remains a hot topic, no changes have been passed into law for 2025. However, there are active political proposals for reform that investors should be aware of.

The Australian Council of Trade Unions (ACTU) has proposed limiting negative gearing and the 50% Capital Gains Tax (CGT) discount to a single investment property. The proposal includes a five-year “grandfathering” period for existing investors to adjust.10

The Australian Greens have a similar policy, proposing to grandfather the benefits for one existing investment property but remove them for any additional properties and all new purchases.

Despite these proposals, leaked Federal Treasury advice from 2025 indicates that changes to negative gearing are “off the table” for the current Labor government, which is focused on housing supply reforms.

The Liberal opposition has strongly rejected the reform proposals, with Senator Andrew Bragg labelling them “absolute garbage” and arguing they would not solve the core issue of housing supply.

The law is currently stable, but the ongoing political debate creates long-term uncertainty. Prudent investors often “stress-test” their strategies to ensure they would remain financially viable even if tax concessions were reduced in the future.

Australia’s rental landscape has undergone significant reforms in 2025. These changes aim to balance the interests of landlords and tenants, ensuring fairness and clarity. Here’s a breakdown of the most impactful updates:

Australia’s rental landscape has undergone significant state-based reforms in 2025. These changes aim to balance the interests of landlords and tenants, and it’s crucial for landlords to stay informed to remain compliant.

Below is a summary of the key rental law changes across Victoria, New South Wales, and Queensland.

Negative gearing could help you reduce tax and manage cash flow, but it’s not right for every investor. If you’re a high-income earner, you may benefit most, while first-time buyers should weigh short-term risks. Speak with a qualified broker to see how it fits your goals and your property strategy.

Our team at Hunter Galloway is here to help you set up an investment property in Australia.  Unlike other mortgage brokers who are just one person operations, we have an entire team of experts dedicated to help make your home loan journey as simple as possible.

If you want to get started, please give us a call on 1300 088 065 or  book a free assessment online to see how we can help.

The information provided in this guide is for general informational purposes only and does not constitute financial, legal, or taxation advice. All information is provided in good faith; however, we make no representation or warranty of any kind regarding its accuracy or completeness. You should not rely on this information as a substitute for professional advice. We strongly recommend you consult with qualified professionals (such as a financial advisor, accountant, and solicitor) before making any investment decisions.