Negative Gearing
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See your exact annual rental loss, tax refund from the ATO, net out-of-pocket cost, and the capital growth rate needed to make the investment worthwhile.Rates current as at 1 July 2025 · ATO FY2025–26
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| Year | Prop. value | Equity | Cum. tax savings | Net return |
|---|---|---|---|---|
| 1 | $735,000 | $175,000 | $7,167 | +$20,355 |
| 2 | $771,750 | $211,750 | $14,335 | +$42,158 |
| 3 | $810,338 | $250,338 | $21,502 | +$65,481 |
| 4 | $850,854 | $290,854 | $28,670 | +$90,401 |
| 5 | $893,397 | $333,397 | $35,837 | +$116,998 |
| 6 | $938,067 | $378,067 | $43,004 | +$145,355 |
| 7 | $984,970 | $424,970 | $50,172 | +$175,560 |
| 8 | $1,034,219 | $474,219 | $57,339 | +$207,705 |
| 9 | $1,085,930 | $525,930 | $64,506 | +$241,888 |
| 10 | $1,140,226 | $580,226 | $71,674 | +$278,211 |
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How Negative Gearing Works in Australia
Negative gearing occurs when the deductible costs of holding an investment property — mortgage interest, council rates, property management fees, repairs, depreciation — exceed the rental income it generates. The ATO allows you to offset this net rental loss against your other taxable income, including your PAYG salary. This reduces your total assessable income and, at higher tax brackets, produces a meaningful refund at tax time.
The tax benefit scales with your marginal rate. On an income of $120,000, your marginal rate is 37% (plus 2% Medicare levy). A $12,000 annual rental loss — $1,000 per month shortfall between rent collected and loan interest paid — generates a $4,680 tax saving. On the same loss, a taxpayer earning $50,000 (marginal rate 19%) saves only $1,980. This asymmetry is why negative gearing is most effective for high-income earners and why lower-income investors should carefully model whether the tax benefit justifies the cash flow shortfall.
Capital growth is the non-negotiable companion to negative gearing. The strategy only makes sense if the property appreciates enough over your holding period to offset accumulated losses, transaction costs (stamp duty, agent's commission at sale), and the CGT liability on your gain. At current ATO rates, individuals held a property for more than 12 months receive a 50% CGT discount, meaning only half the capital gain is added to assessable income — a significant offset. However, proposed indexation reforms (flagged for 2027) may alter this calculation for new investors.