What is negative gearing in Australia, and how is it changing? A beginner's guide

By FastBuySale Newsroom · 5 Nov 2026 · 13m ago

How does negative gearing work?

Negative gearing explained simply: the Australian Taxation Office (ATO) says a rental property is negatively geared if your deductible expenses are more than the income you earn from it. You can then claim those rental deductions against your rental income and your other income, such as salary, wages or business income, which lowers your taxable income. If your other income is not enough to absorb the loss, you carry it forward to the next income year.

The opposite is positive gearing: your deductible expenses are less than the rent, so you make a taxable profit.

The ATO's older guidance describes the typical case: a property bought with borrowed money where net rental income, after other expenses, is less than the interest on the loan. The result is a net rental loss, and you may be able to claim the full rental expenses against your rental and other income in your tax return.

Deductible expenses commonly include loan interest and running costs. The ATO says you cannot claim expenses you did not actually pay (such as water or electricity paid by tenants); acquisition and disposal costs such as the purchase price, conveyancing and advertising, which instead usually go into the property's cost base and reduce capital gains tax on sale; decline in value of second-hand depreciating assets; costs for a holiday home that is not mainly used to produce rental income; or GST credits, because GST does not apply to residential rents.

Illustration of the mechanics (hypothetical numbers): rent of $25,000 a year against interest and expenses of $35,000 gives a $10,000 net rental loss. That loss reduces taxable income from salary by $10,000. The tax saved depends on your marginal rate, so the investor is still $10,000 out of pocket before tax and less after tax.

Cash-flow help: the ATO says that if your rental deductions would produce a tax refund, you can apply for a PAYG withholding variation to reduce tax withheld from your pay during the year rather than waiting for your refund.

In myTax, rental details go under 'You had Australian interest, or other Australian income or losses from investments or property', with expenses entered in the 'Rental expenses' fields. Model loan repayments first with our

Readers evaluating Negative gearing should separate marketing claims from the actual rule text that governs their account or product. When two summaries disagree, the governing document or statute wins. If a rule depends on your age, filing status, or income band, re-check it when any of those facts change. Life events quietly move people across thresholds they last reviewed years earlier.

Educational explainers like this one cannot replace personalized advice for complex situations such as divorce orders, inherited accounts, or cross-border tax residency. Escalate those cases to a qualified professional. When in doubt about a number that changes every year, describe your plan qualitatively first, then look up the current official figure for the tax year you care about before you act.

What did the 2026-27 Budget announce?

The Budget tax explainer says that under current settings rental losses can reduce other income such as salary and wages. From 1 July 2027, losses on existing residential investment properties purchased from 7:30pm AEST on 12 May 2026 will only be deductible against other income from residential properties, including capital gains.

Excess losses are not lost: investors will be able to carry them forward to offset residential property income in future years.

Who is covered: individuals, partnerships, companies and most trusts. Widely held trusts, such as most managed investment trusts, and superannuation funds including SMSFs are excluded.

New builds keep negative gearing. Investors who buy new builds that genuinely add to housing supply, such as dwellings on vacant land or demolitions replaced by more dwellings, can still offset rental losses against salary and wages.

Existing investors: the Budget's example investor, Michael, bought before 12 May 2026 and can keep negatively gearing that property against other income.

Worth of the deduction: the explainer gives a rental loss of $14,810 as worth $4,761 to someone with $80,000 of other income and $6,961 to someone with $210,000. Under the new rules a buyer of an established property after the cut-off would carry that loss forward instead.

These are announced measures; the ATO page links to its Tax reform page for details. Check the latest status before you buy, because the purchase date and property type now matter.

A useful habit is to write down your goal, time horizon, and cash buffer before you change any election related to Negative gearing. Decisions made during a stressful week are the ones people reverse later at a cost. Educational explainers like this one cannot replace personalized advice for complex situations such as divorce orders, inherited accounts, or cross-border tax residency. Escalate those cases to a qualified professional.

What are the risks and common mistakes?

Mistake 1, buying for the tax deduction: a deduction only refunds part of a loss. If prices do not rise, you may simply lose money more slowly.

Mistake 2, claiming capital costs as expenses: purchase costs, conveyancing and advertising go into the cost base, not into this year's deductions.

Mistake 3, claiming for a holiday home: the ATO limits deductions where a property is not mainly used to produce rental income.

Mistake 4, ignoring rates and vacancies: higher interest rates or a vacant month can enlarge losses quickly. Stress-test repayments at higher rates with the and check how inflation affects rents and costs with the

Mistake 5, overlooking income tests: the ATO counts net investment losses, including negatively geared rental and share portfolios, when working out some income tests, such as the $250,000 income requirement in the non-commercial loss rules.

Our guides to and cover other basics for Australian investors.

Keep digital and paper copies of confirmations after every change. Screenshots of election pages, email receipts, and year-end statements make tax season and job changes far less chaotic. Compare fees the same way you would compare two similar listings before you buy: look at what you pay each year, what you get, and whether a simpler option meets the same need.

Is negative gearing right for you?

Ask three questions. Can you fund the shortfall from your own income every month, even if rates rise or the property is empty? Is your marginal tax rate high enough that the deduction meaningfully reduces the loss? And would the property still make sense if prices were flat for several years?

Check the timing: was the property contracted before or after 7:30pm AEST on 12 May 2026, and is it a new build or an established dwelling? Under the Budget measures, that decides whether losses can reduce salary income after 1 July 2027.

Compare alternatives such as paying off your own home loan or investing through super. Estimate your after-tax income with the

Keep records of every expense, the loan purpose and rental income, and get personal advice from a registered tax agent before acting.

Found this Negative gearing explainer useful? Share it with a friend, tell us what we missed in the comments, and get the FastBuySale app on Google Play () for more guides. Have something to sell? Post a free listing at in a couple of minutes.

If a rule depends on your age, filing status, or income band, re-check it when any of those facts change. Life events quietly move people across thresholds they last reviewed years earlier. Automation helps. Calendar reminders for annual reviews, automatic transfers, and beneficiary checkups reduce the chance that a good plan dies from neglect.

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