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Free · Australia

Negative Gearing Calculator

Estimate the annual tax benefit and after-tax cash position of a negatively geared Australian investment property.

Income, expenses and tax

$
$
$
$
39.0%

Estimated tax benefit

$1,950

Negatively geared

-$5,000

Taxable property result

$1,000

Pre-tax cash flow

$2,950

After-tax cash flow

How negative gearing works in Australia

Negative gearing is one of Australia's most widely used property investment strategies. When your investment property costs more to hold than it earns in rent, the ATO allows you to deduct that loss against your other income — effectively sharing part of your shortfall with the government. Understanding the mechanics helps you assess whether the tax saving truly offsets the cash cost, and whether the strategy suits your financial position.

Calculating your tax benefit

The tax benefit of negative gearing depends on two numbers: your net rental loss (total deductible expenses minus gross rent) and your marginal tax rate. The ATO lets you offset the loss against your salary, reducing your income tax payable by the loss multiplied by your marginal rate.

FormulaNet rental loss = Total deductible expenses − Gross rental income Tax benefit = Net rental loss × Marginal tax rate After-tax shortfall = Pre-tax shortfall − Tax benefitDeductible expenses include interest, rates, insurance, management fees, repairs, and depreciation. Depreciation is non-cash but fully deductible — it is the most powerful lever for increasing your tax benefit.
Worked Example — $750,000 property, 47% marginal rate

An investor earning $200,000/year purchases a $750,000 property with an $600,000 interest-only loan at 6.5%.

Gross annual rent ($600/week)$31,200
Annual loan interest ($600k × 6.5%)−$39,000
Rates, insurance, management (~$8,500)−$8,500
Depreciation (quantity surveyor schedule)−$9,000
Net rental loss−$25,300
Tax benefit (47% × $25,300)+$11,891
Pre-tax cash shortfall (excl. depreciation)−$16,300
After-tax cash cost per year~$4,409

The investor pays $4,409 out of pocket per year to hold the property — about $85/week. The $9,000 depreciation deduction is the key reason the after-tax cost is so low; without it the annual cost would be roughly $8,900.

Negative gearing vs positive gearing: which is better?

Negative gearing suits investors who can comfortably cover the cash shortfall and are primarily seeking capital growth. Positive gearing — where rent exceeds expenses — generates taxable income each year but typically occurs in higher-yield, lower-growth regional markets. Neither strategy is universally superior; the right choice depends on your income, cash flow needs, and growth expectations.

Comparison at a glance
FactorNegative Gearing
Annual cash flowNegative (out of pocket)
Tax positionReduces taxable income
Typical marketCapital city, high growth
Yield profileLow yield, high CG potential
Best suited toHigh-income, long horizon

Most Australian property investors in Sydney, Melbourne, and Brisbane operate negatively geared portfolios. The strategy requires patience — the real return comes at sale, not during ownership. Always model your cash flow position over a 10-year horizon before committing.

Negative gearing FAQs

What is negative gearing and how does it work in Australia?

Negative gearing occurs when the deductible costs of owning an investment property — interest, rates, insurance, repairs, property management, and depreciation — exceed the rental income it generates. The resulting loss can be offset against your other taxable income (such as salary), reducing your total tax bill. The Australian Tax Office allows this deduction under Section 8-1 of the Income Tax Assessment Act 1997. The tax saving does not eliminate the cash shortfall, but it reduces how much the shortfall actually costs you after tax.

What expenses can I deduct on a negatively geared property?

Deductible expenses include: loan interest (the largest component), council rates, water rates, landlord insurance, property management fees (typically 7–10% of rent), repairs and maintenance, advertising for tenants, accounting fees for the property, and depreciation on the building (capital works) and fixtures (plant and equipment). Capital improvements are not immediately deductible — they are added to the cost base and reduce capital gains tax on eventual sale.

What is depreciation and how does it increase my tax deduction?

Depreciation is a non-cash deduction that accounts for the wear and tear of the building structure (2.5% per year over 40 years for buildings constructed after 1987) and fixtures and fittings (e.g., carpet, dishwasher, air conditioning). A quantity surveyor can prepare a depreciation schedule for typically $500–$700, which often generates thousands of dollars in additional annual deductions. For a $700,000 property, depreciation deductions of $8,000–$15,000 per year are common in the first decade.

Does negative gearing guarantee a profit?

No. Negative gearing is a tax strategy, not a profit strategy. The investment only becomes profitable if capital growth — the increase in the property's value over time — exceeds the cumulative after-tax cash shortfalls. In periods of flat or falling property values, a negatively geared investor can face both ongoing cash losses and capital losses simultaneously. The strategy works best in markets with strong long-term capital growth.

How does the marginal tax rate affect the value of negative gearing?

The higher your marginal tax rate, the more valuable each dollar of property loss becomes as a tax offset. An investor on the 47% rate (including Medicare levy) saves $0.47 for every $1 of deductible loss. An investor on the 32.5% rate saves only $0.325. This is why negative gearing is often described as more beneficial for high-income earners — they receive a larger government subsidy per dollar of loss.

What happens to my negative gearing deductions if I sell the property?

When you sell, deferred losses do not carry forward — they have already been claimed each year. However, any capital gain on sale is subject to CGT. If you owned the property for more than 12 months, you are entitled to the 50% CGT discount, meaning only half the gain is added to your taxable income in the year of sale. The combination of annual tax offsets plus a discounted capital gain is the fundamental economics underpinning the negative gearing strategy.