Negative gearing isn't a discount. It's a loss you choose to carry.
A rental property is negatively geared when the cost of holding it — mostly loan interest, plus rates, insurance and upkeep — is more than the rent it earns. That shortfall is a real rental loss. Under current ATO rules you can deduct that loss against your other income, so the tax system softens it. But it doesn't erase it: you still fund the gap every month. Here's exactly how the numbers flow, and why the loan still has to service.
Rent, minus costs, equals a loss — then tax softens the loss.
This waterfall follows one hypothetical property for a full year. Gross rent steps down through loan interest and other expenses to a net rental loss; that loss then reduces the investor's taxable income at their marginal rate. Watch the last two columns: the tax offset only recovers part of the loss — the rest is still cash out of pocket.
The point of the picture: after the tax effect, this hypothetical investor is still about $6,804 a year (~$131 a week) out of pocket. A 37% marginal rate recovered $3,996 of the $10,800 loss — not the whole thing. Negative gearing reduces the cost of carrying a loss; it does not convert a loss into income. The strategy only stacks up if the property's expected capital growth outweighs the cash you feed it over time — and only if you can comfortably afford the shortfall in the meantime.
HYPOTHETICAL EXAMPLE — illustrative and rounded, general information only, not tax or financial advice. Assumes one investor with taxable income in the $135,001–$190,000 band (37% marginal rate; the 2% Medicare levy is excluded for simplicity) and an investment loan of roughly $525,000 at an indicative 6.3% p.a. investor variable rate. Your rent, rate, expenses, income, depreciation and tax position will differ, and tax law can change. Interest deductibility applies to the interest portion only, not principal. This is not a recommendation to negatively gear. Confirm your own position with your accountant.
Three things negative gearing really means.
It's a loss, by definition
"Negatively geared" simply means the deductible costs of owning the property are higher than the rent. If rent covers the costs, it's neutral or positively geared instead. The gearing describes the cash position — not a benefit you receive.
Only interest is deductible
The interest portion of your loan is generally deductible where the borrowing is to acquire or hold the rental property. Principal repayments are capital and aren't deductible — which is why loan structure matters, and why some investors discuss interest-only with their accountant. General information only.
The loss offsets other income
Under current ATO rules an individual can deduct a net rental loss against other income — salary, wages or business income — reducing taxable income. If your other income can't absorb it, the loss can generally be carried forward. How much tax that saves depends on your marginal rate.
The refund is real. So is the money you feed it.
The most common misread of negative gearing is treating the tax saving as if it makes the property free. It doesn't. Three things to hold in your head at once:
You fund the gap first
The shortfall between rent and costs is paid by you, out of your own pocket, throughout the year. Any tax benefit typically arrives later, at tax time — or sooner if you arrange a PAYG withholding variation with the ATO. Either way, you need the cash flow to carry it. General information only.
It scales with your rate
The tax saved equals your net rental loss multiplied by your marginal rate. A higher marginal rate recovers more of the loss; a lower one recovers less. It's always a fraction of the loss, never the whole loss — and the levels are set by law, not by us.
Growth has to do the work
Investors who choose to gear are usually banking on the property's capital growth over time exceeding the after-tax cost of holding it. That's an investment judgment about a specific property and your own goals — get personal advice on it. Past growth doesn't predict future growth.
The same loss saves different amounts of tax.
The tax effect of a rental loss depends on the marginal rate that applies to the income the loss is offsetting. These are the 2025–26 resident individual rates — general information, not advice.
| Taxable income (2025–26) | Marginal rate |
|---|---|
| $0 – $18,200 (tax-free threshold) | 0% |
| $18,201 – $45,000 | 16% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001 + | 45% |
General information, not tax or financial advice — confirm with your accountant. Resident individual rates for the 2025–26 income year; a 2% Medicare levy generally applies on top for most taxpayers. Legislated changes reduce the 16% band to 15% from 1 July 2026 and 14% from 1 July 2027. A rental loss reduces taxable income; the tax saved is the loss multiplied by the rate that would otherwise apply — it is not a dollar-for-dollar refund. Source: ATO, Tax rates – Australian resident.
Announced reforms take effect from 1 July 2027. Don't assume today's settings are permanent.
As at July 2026, negative gearing and the 50% CGT discount still apply. But reforms were announced in the 2026–27 Federal Budget (12 May 2026). They are not yet legislated, and the detail below could change — but you should factor them in, not ignore them:
- From 1 July 2027, for established residential property purchased after 7:30pm AEST on 12 May 2026, a net rental loss would be deductible only against residential rental income or property capital gains — not against salary or other income.
- Grandfathering: properties held (or under contract) at 7:30pm on 12 May 2026 keep the existing negative gearing and 50% CGT treatment until sold.
- New builds exempt: eligible newly constructed dwellings keep both negative gearing and the 50% CGT discount; free-standing knock-down rebuilds replacing a single house are excluded.
- From 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships would be replaced by cost-base indexation plus a 30% minimum tax on net capital gains for assets held more than 12 months.
General information only, not tax or financial advice — and not a statement of enacted law. Announced in the 2026–27 Federal Budget (12 May 2026); not yet legislated as at July 2026, and subject to change through the parliamentary process. Confirm current rules and how they apply to you with your accountant or registered tax adviser. Source: ATO — Tax reform: Boosting home ownership; Treasury 2026–27 Budget factsheet.
Whatever the tax outcome, the loan still has to service.
Negative gearing is your accountant's territory. The finance is ours. And no tax position changes the fact that a lender has to be satisfied you can afford the loan — including the cash shortfall — before they'll approve it.
The serviceability reality behind an investment loan
Lenders assess your ability to repay at an interest rate at least 3 percentage points above the loan's actual rate — APRA's serviceability buffer — so the loan has to work even if rates rise. They also typically count only a portion of your gross rent (commonly around 70–80%) toward serviceability, to allow for vacancy and costs. The rental shortfall is treated as a real outgoing; the tax benefit does not make the loan self-funding.
Investors generally pay a little more than owner-occupiers, too — around 0.15%–0.25% p.a. more on variable loans on recent figures, with sharp investor variable rates sitting broadly in the 6.1%–6.5% p.a. range, indicative and as at mid-2026. Rates move with the RBA cash rate (4.35% as at July 2026) and can rise or fall.
Rates and ranges are indicative only, not an offer of credit, a quote, or a guarantee of approval or a particular rate. A comparison rate combines the interest rate with most fees and charges based on a standard example (typically $150,000 over 25 years) and is not the rate you will be offered. Actual rates and serviceability depend on the lender, product, LVR and your circumstances, and are confirmed in writing. We compare products from our panel of 50 lenders — not every lender or product in the market.
Negative gearing, answered straight.
What is negative gearing, plainly?
It's when a rental property's deductible costs — mainly loan interest, plus rates, insurance, management and maintenance — add up to more than the rent it earns. That shortfall is a net rental loss. Under current ATO rules an individual can deduct that loss against their other income, which lowers taxable income. "Negatively geared" describes the cash position; it isn't a product or a benefit paid to you. General information only — not tax advice.
Does the tax refund make the property free to hold?
No. The tax saving is your net rental loss multiplied by your marginal rate, so it only ever recovers a portion of the loss — never the whole thing. In our hypothetical example a $10,800 loss at a 37% marginal rate saves about $3,996 in tax, still leaving roughly $6,804 a year funded from your own pocket. You carry the shortfall; the tax system just softens it. Hypothetical, general information only.
Is only the interest deductible, not my whole repayment?
Generally, yes — the interest portion of the loan is deductible where the borrowing is to acquire or hold the rental property, but principal repayments are capital and aren't deductible. That's why loan structure matters and why some investors discuss interest-only arrangements with their accountant. Confirm what applies to you with a registered tax adviser.
Do I need a high income to negatively gear?
The tax effect scales with your marginal rate, so a higher rate recovers more of the loss than a lower one — but the more important questions are whether you can comfortably fund the cash shortfall and whether the property is likely to grow in value over time. Gearing amplifies both gains and losses, so it isn't automatically right at any income level. This is general information, not personal advice.
Isn't negative gearing being changed?
Reforms were announced in the 2026–27 Federal Budget (12 May 2026) and, if legislated, would apply from 1 July 2027: for established residential property bought after that budget announcement, net rental losses could no longer be offset against salary or other income. Properties held at the announcement date are grandfathered, and eligible new builds are exempt. As at July 2026 this is announced but not yet law and could change. Confirm the current rules with your accountant.
Will negative gearing help me borrow more?
Not really — lenders assess the loan on serviceability, at an interest rate at least 3 percentage points above the actual rate (APRA's buffer), and usually count only around 70–80% of gross rent. The rental shortfall is treated as a genuine outgoing, and the tax benefit doesn't make the loan self-funding. The property has to stack up as finance in its own right, which is exactly what we help you work through.
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