Estimate the annual tax benefit of negative gearing on an Australian investment property. Enter your rental income, deductible expenses, and marginal tax rate to see your net loss and tax refund.
Negative Gearing Calculator
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What Is Negative Gearing?
Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates. The resulting net loss is deductible against your other income (such as salary), reducing the tax you pay.
Positive gearing is the reverse — the property generates more rental income than it costs, creating a taxable profit.
Neutral gearing is when income and expenses roughly break even.
Under current Australian tax law (as of FY2025–26), negative gearing losses on investment properties are fully deductible against other income in the same year. This has been a feature of Australian tax law for decades and is one of the main reasons property investment is popular in Australia.
What Expenses Are Deductible?
The ATO allows deductions for expenses incurred in producing rental income. Common deductible expenses include:
| Deductible expense | Notes |
|---|---|
| Mortgage interest | Interest component only — not principal |
| Council rates | Fully deductible |
| Property management fees | Fully deductible |
| Landlord insurance | Fully deductible |
| Repairs and maintenance | Must be genuine repairs, not improvements |
| Depreciation — Division 40 (plant & equipment) | Items like appliances, carpet, blinds |
| Depreciation — Division 43 (building write-down) | Available on properties built after July 1985 |
| Body corporate / strata fees | Fully deductible |
| Advertising for tenants | Fully deductible |
| Tax agent fees for rental property | Fully deductible |
| Interest on loans for other property costs | e.g., interest on loan for renovation |
Not deductible: Principal repayments, borrowing costs in the year paid (claimed over 5 years), land tax (deductible for investment properties only in most states), capital improvements (added to the cost base).
Depreciation — The Hidden Tax Advantage
Depreciation is a non-cash deduction that reduces your taxable income without requiring any cash outflow. You don’t spend money on depreciation — it’s a paper deduction based on the declining value of the building and its fittings.
Two types of depreciation claims:
Division 43 — Capital Works (building allowance): Properties built after July 1985 can claim 2.5% per year of the original construction cost as a building write-down deduction. This is worth significant money over time. A property with $200,000 in construction costs generates $5,000/year in Division 43 deductions.
Division 40 — Plant and Equipment: Items with a limited effective life (ovens, dishwashers, carpets, blinds, hot water systems) are depreciated over their effective life. On a typical investment apartment, Div 40 items may be worth $2,000–$5,000/year in deductions in the early years.
To claim depreciation, you need a depreciation schedule prepared by a licensed quantity surveyor. This costs $500–$900 but typically saves 5–10 times that in tax in the first year alone.
Note: As of 1 July 2017, ATO rules changed for second-hand property — owners of existing used residential property can no longer claim depreciation on previously used plant and equipment items. New properties are unaffected.
The 50% CGT Discount and Negative Gearing Strategy
The standard negative gearing strategy in Australia works in two parts:
- Cash flow advantage now — negative gearing reduces your annual tax bill, partially subsidising your holding costs
- Capital gain on sale — after holding for 12+ months, any capital gain is taxed at a 50% discount (meaning you pay tax on only 50% of the gain)
Example: You buy an investment property and run a $15,000/year rental loss. At 37% marginal rate, you get back $5,550/year in tax. After 10 years, property has grown $400,000 — CGT is assessed on $200,000 (50% discount) at 37% = $74,000 in CGT.
The strategy works if capital growth exceeds the cumulative net cost. It depends heavily on property price growth, which is not guaranteed.
Risks of Negative Gearing
Negative gearing is widely used in Australia but carries real risks:
- Capital growth is not guaranteed — if prices stagnate or fall, you’re out of pocket on both the annual loss and the exit
- Rising interest rates increase the loss — as the interest expense grows, so does the annual deficit
- Vacant periods still cost you — mortgage, rates and insurance continue even when a tenant is not paying rent
- Tax law can change — negative gearing has faced political debate in multiple federal elections
- LMI, transaction costs, and land tax all add to the cost of entry and exit
FAQ — Negative Gearing Australia
Can I offset a rental loss against my partner’s income?
No. Rental losses can only be offset against your own income. If the property is jointly owned, each owner claims their share of losses against their own income. To maximise the tax benefit, properties are often structured in the name of the higher-income earner.
Does negative gearing apply to shares?
Yes — negative gearing applies to any income-producing investment, including shares. If you borrow to buy shares and the investment income is less than the loan interest, the loss is deductible. However, margin loans and share investments carry different risks.
What is the Div 7A / trust interaction?
Properties held in trusts cannot pass negative gearing losses through to beneficiaries in the same way as individually held property — trust losses are “quarantined.” This is one reason most investment properties in Australia are held in individual names or with a partner.
This calculator provides a simplified estimate for general information. Tax outcomes depend on your individual tax position and the ATO’s assessment of your deductions. Always obtain advice from a registered tax agent or accountant before making investment decisions. For property investment advice, consult a licensed financial adviser. Find one through MoneySmart.