Negative gearing is one of the most discussed — and most misunderstood — concepts in Australian property investment. Here is a plain-English explanation of what it actually means, how it works with your loan structure, and whether it makes sense for your situation.
An investment property is negatively geared when the costs of owning it — primarily loan interest, but also rates, insurance, property management, repairs and depreciation — exceed the rental income it generates. The resulting loss can be offset against your other income (such as your salary), reducing your overall tax liability.
For example: if your investment property generates $28,000 in rent but costs $38,000 to hold (interest plus other expenses), you have a $10,000 loss. If you are on a marginal tax rate of 37%, this reduces your tax by $3,700.
The interest on borrowings used for investment is tax deductible — but only the interest, not principal repayments. This is why many investors use interest-only loans: it maximises the deductible expense and preserves cash flow.
Critically, the loan structure must be clean. Mixing investment borrowings with personal spending — using the same account for both, for example — can contaminate the tax deductibility of the interest. Lendology structures investment loans to maintain clean separation and preserve full deductibility.
A positively geared property generates more rental income than its holding costs — you make money from day one. Negative gearing means you are subsidising the property through tax savings and counting on capital growth to generate your return over time.
Neither is universally better. Positive gearing generates income now but may have lower capital growth potential. Negative gearing suits higher-income investors who benefit most from the tax offset and are focused on long-term appreciation. The right approach depends on your income, tax position and investment goals.
Negative gearing is a strategy that uses the tax system to reduce the cost of holding a property while waiting for capital growth. It is not a guaranteed path to wealth — the tax saving does not cover the full cash shortfall, and the strategy depends on the property growing in value.
For higher-income earners in markets with strong capital growth prospects — like many Adelaide suburbs — negative gearing can be an effective component of a broader investment strategy. Lendology works alongside your accountant to model the actual after-tax numbers for your specific situation.
The higher your marginal tax rate, the more valuable the tax offset. Negative gearing on a 47% marginal rate (including Medicare levy) returns significantly more than on 32.5%. It can still be worthwhile at lower income levels, but the after-tax numbers need to be modelled carefully.
Yes. Interest-only loans maximise the deductible interest expense. P&I loans reduce the outstanding balance over time, which reduces the interest charged and therefore the deductible expense. Most accountants recommend interest-only for negatively geared properties.
Yes. The losses from multiple investment properties are aggregated and offset against your income. Many investors build a portfolio of negatively geared properties over time, though the combined cash shortfall needs to be manageable on your income.
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