What Is Negative Gearing, and How Could It Affect You?
Negative gearing is making headlines again, but what is it all about, and how might it impact you? We’ll break down what negative gearing is, why it’s popular with investors, and why it’s attracting renewed attention.
Australians are known for their love of property—more than one in ten adults (2.2 million Australians) own an investment property. But why is property such a popular investment? Besides earning rental income to cover loan repayments, the property offers the potential for long-term capital gains. Over the past century, property prices have risen by an average of 10.9% per year according to AMP Insights. This can lead to substantial profits when a property is sold, which may even be eligible for a 50% capital gains tax (CGT) discount.
But a third key factor that makes a property attractive to investors is the tax savings that come with negative gearing.
What Is Negative Gearing and How Does It Work?
At its core, gearing means borrowing to invest. Negative gearing occurs when the costs of owning a property—like interest payments, council rates, and insurance—exceed the rental income the property generates. The resulting loss can be claimed on your tax return, even if the property’s value is increasing.
The advantage? You can offset that loss against your other income, including wages, potentially lowering your tax bill. Find out more about negative gearing and its tax implications.
An Example of Negative Gearing in Action
Let’s take Deb as an example. Deb earns an annual salary of $125,000 and, at the 2024-2025 tax rates, she would pay $28,288 in tax. Deb buys an investment property that brings in $25,000 in rent but costs her $35,000 in expenses annually, leaving her with a $10,000 loss. Deb can claim this loss, reducing her taxable income to $115,000 and lowering her tax to $25,288—a saving of $3,000.
This tax saving can help reduce her overall investment loan and improve cash flow. Learn more about tax deductions for property investors.
Why Negative Gearing Is in the Spotlight Again
Recently, Federal Treasurer Jim Chalmers revealed that Treasury is modelling the impact of negative gearing on housing supply. Although Prime Minister Anthony Albanese stated there are “no plans” to change negative gearing, the future is uncertain when it comes to political decisions.
Considering that 2.2 million Australians are property investors—and many of them negatively gear—it’s a topic that remains contentious. You can read more on how negative gearing could impact.
Interested in Investing?
If you’re thinking about buying an investment property, it’s essential to talk to a tax professional to see if negative gearing is the right fit for you. While it works for many investors, it’s not always the best option for everyone.
If you want to explore finance options or find out how much you can borrow, get in touch with us today. We can help you assess your borrowing capacity and show you how to leverage the equity in your current property to make your investment dreams a reality.
Whether you’re buying or refinancing, we’re here to support you every step of the way. You can book an obligation-free appointment CLICK HERE to get started.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
