How does negative gearing work?

The direct answer

Negative gearing occurs when the costs of owning an investment property (loan interest, maintenance, rates, insurance, depreciation) exceed the rental income it generates. The resulting loss can be deducted from your other income - typically your salary - reducing the amount of tax you pay. It is a tax strategy, not a profit strategy in itself.

How negative gearing works in practice

Suppose you buy a $600,000 investment property in Adelaide. You borrow $480,000 at 6.2% interest, costing you around $29,760 per year in interest alone. Add council rates, insurance, property management, maintenance, and depreciation, and your total costs might be $40,000 per year. If the property earns $28,000 per year in rent, you have a $12,000 annual loss.

That $12,000 loss is deducted from your taxable income. If you earn $120,000 salary, your taxable income drops to $108,000. At a marginal tax rate of 37%, this saves you approximately $4,440 in tax. You are still out of pocket around $7,560 for the year - but the strategy assumes the property will grow in value over time to more than compensate.

Loan structuring for investment properties

How you structure your investment loan matters significantly for tax outcomes. Lendology works with investors to ensure their loan structure maximises allowable deductions while maintaining flexibility. This includes decisions about interest-only vs principal and interest, offset account placement, and keeping investment and personal borrowing separate.

The ATO is strict about mixing personal and investment borrowing. Your Lendology broker will ensure your loan is structured correctly from day one, and recommend you speak with a qualified accountant about the tax implications specific to your situation.

Common questions

Frequently asked questions

Is negative gearing only for property?

No - negative gearing applies to any income-producing investment where the costs exceed the income, including shares. However, it is most commonly associated with investment property in Australia because of the combination of loan interest, depreciation, and other deductible expenses.

Does negative gearing guarantee I will make money?

No. Negative gearing reduces your tax, but you are still making a loss on the property each year. The strategy relies on capital growth (the property increasing in value over time) to deliver a net profit when you eventually sell. If the property does not grow in value, you lose money.

Should I use an offset account on a negatively geared property?

It depends. An offset account reduces the interest you pay, which also reduces your tax deduction. If you have an owner-occupied loan as well, it is usually better to direct savings into the offset on your home loan (which is not tax-deductible) and keep the investment loan balance high. Talk to your accountant about the best structure.

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The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.