Superannuation and negative gearing are two of the most discussed tax strategies in Australia — but they operate quite differently, and combining them requires care.
What Is Negative Gearing?
Negative gearing occurs when the costs of owning an investment property (or shares) exceed the income it generates. The resulting net rental loss is deductible against your other income (such as wages), reducing your taxable income and therefore your income tax.
Key benefits of negative gearing (outside super):
- Deduct losses against wage income in the current year
- CGT discount (50%) when you sell an asset held more than 12 months
Can You Negatively Gear Inside Super?
In the traditional sense — no. Super funds are separate tax entities and their losses cannot be offset against the member’s personal income.
However, there are nuances:
Inside a Standard Super Fund
- Investment losses inside your super fund cannot be deducted from your personal income
- Losses within the fund are carried forward to offset future super fund income
- Gearing within a fund structure is rare outside SMSFs
Inside an SMSF (Limited Recourse Borrowing Arrangement — LRBA)
An SMSF can borrow to purchase assets (typically property) using a Limited Recourse Borrowing Arrangement. The structure allows the SMSF to own leveraged property:
- The property income (rent) flows to the SMSF
- The SMSF pays interest on the loan — if interest > rent, the SMSF makes a net loss on the property
- This loss is deducted within the SMSF against other SMSF income (e.g., investment returns)
- The loss cannot flow through to personal income — it is contained within the SMSF
This is sometimes called “negative gearing inside super” — but it is NOT the same as standard negative gearing, because:
- The tax rate inside super is only 15% (not your marginal rate)
- You cannot offset SMSF losses against personal income
- LRBA structures are complex and heavily regulated (ATO’s safe harbour provisions apply)
Comparing Negative Gearing Inside and Outside Super
| Feature | Negative gearing (personal) | LRBA in SMSF |
|---|---|---|
| Losses offset against personal income | ✅ Yes | ❌ No |
| Capital gains tax discount (50%) | ✅ Yes (if held 12+ months) | Partial — 10% tax rate in accumulation, 0% in pension phase |
| Tax rate on rental income | Marginal rate (up to 47%) | 15% (accumulation), 0% (pension phase) |
| Asset ownership | Personal | SMSF trust |
| Access to proceeds | Immediate | Preserved until retirement |
| Complexity | Low-moderate | High — LRBA rules, bare trust, ATO safe harbour |
Is It Worth Combining Negative Gearing and Super?
For most people, negative gearing outside super and superannuation contributions are complementary rather than combined:
- Maximise concessional super contributions (reducing taxable income by up to $30,000/year)
- Use negative gearing to offset remaining income
- Both strategies reduce current-year income tax
Using an SMSF with a property LRBA can make sense for some people — but requires specialist SMSF advice, a sufficient fund balance, and careful consideration of the fund’s liquidity and diversification.
ATO’s View on SMSF Property
The ATO has tightened oversight of SMSF property investments and LRBAs. Key requirements:
- Interest rates on related-party loans must meet ATO safe harbour rates
- The property must meet the sole purpose test (retirement benefit, not personal use)
- Residential property purchased by an SMSF cannot be lived in or rented to members or related parties
The ATO regularly reviews SMSF property arrangements and has disqualified trustees and imposed penalties for non-compliance.
For more: SMSF Guide, Salary Sacrifice Super, Super vs Shares. For advice tailored to your situation, speak with a licensed financial adviser via MoneySmart.