Key Highlights
- Negative gearing means your investment property costs more to hold than it earns in rent as the shortfall is tax-deductible against your other income, reducing the real after-tax cost
- The higher your marginal tax rate, the more valuable the deduction – a $21,000 annual property loss costs a top-bracket earner $221 per week after tax versus $273 per week for someone in the 32.5% bracket
- Depreciation on new properties adds a non-cash deduction that increases the tax benefit without any additional out-of-pocket cost eg: a new Springfield property worth $650,000 can generate $4,000 to $8,000 in annual depreciation deductions
- Negative gearing is not a strategy, it is a consequence of paying a high price for a growth asset. The tax saving reduces your holding cost but it does not make a poorly chosen property a good investment
- A PAYG withholding variation lets you access the tax saving as extra take-home pay each fortnight instead of waiting for a tax return, for many investors this is what makes the weekly holding cost genuinely manageable
Use our Negative Gearing Calculator to enter your specific property figures and instantly see your real after-tax weekly holding cost at your income bracket.
What Is Negative Gearing?
Negative gearing is when the costs of owning an investment property exceed the rental income it generates. The result is a net annual loss on the property.
In Australia, this net loss can be offset against your other taxable income (your salary, business income, or other investment returns) which reduces the total tax you pay for that financial year. The Australian Tax Office allows this deduction because the rental property is an income-producing asset, and the costs of maintaining that asset are legitimately deductible against all forms of assessable income.
The term itself is straightforward: “gearing” refers to borrowing to invest. “Negative gearing” means the return from the investment (rent) is less than the cost of the debt (interest) plus other holding costs. “Positive gearing” means the rental income exceeds all costs and the property generates a net profit. “Neutral gearing” means income and costs roughly break even.
Most Australian property investors with a mortgage are negatively geared, particularly in the current interest rate environment where the RBA cash rate sits at 4.10% and investment loan rates are approximately 6.5% to 7.0% per annum. At these rates, a $600,000 investment loan generates around $39,000 to $42,000 in annual interest alone, which most residential investment properties do not fully cover with rent.
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Negative, neutral, and positive gearing explained
Most Brisbane investment properties with a mortgage are negatively geared at current rates (6.5% to 7.0% IO). The tax saving reduces the real out-of-pocket cost but does not eliminate it. Capital growth is what makes the investment worthwhile — the tax deduction just reduces the cost of waiting.
How the Negative Gearing Tax Deduction Works
The tax deduction mechanism is straightforward but widely misunderstood. Here is the actual flow:
- You earn income from your salary or business and this is your assessable income for the year
- Your investment property generates a net loss which is rental income minus all deductible expenses
- That net loss is subtracted from your assessable income, reducing the total amount on which you pay tax
- Your total tax liability is calculated on the reduced income figure
- The tax you save equals your marginal tax rate multiplied by the property loss
The critical point is that the tax saving does not make you whole as it reduces the net loss but does not eliminate it. A $21,000 property loss at a 37% marginal rate produces a $7,770 tax saving. You are still $13,230 out of pocket for the year, or approximately $254 per week. The tax deduction is valuable but it is a partial offset, not a free ride.
How marginal tax rates affect the deduction
The value of the negative gearing deduction is directly linked to your marginal tax rate which is the rate you pay on the last dollar of income you earn. This is why negative gearing is more beneficial for higher income earners and why its distributional effects attract ongoing policy debate.
| Annual income | Marginal rate | Tax saving on $21,080 loss | Real weekly cost |
| $45,001 to $120,000 | 32.5% | $6,851 | $273/week |
| $120,001 to $180,000 | 37% | $7,800 | $255/week |
| $180,001 and above | 45% | $9,486 | $221/week |
The same $21,080 annual property loss saves nearly $2,600 more in tax for a top-bracket earner than for someone in the 32.5% bracket. This is why higher income earners benefit more from negatively geared properties and tend to hold them in higher proportions relative to their income.
What You Can and Cannot Claim as a Deduction
The ATO distinguishes between deductible expenses (claimable in full in the year incurred), capital expenses (depreciated over time), and non-deductible costs. Getting this right is critical as overclaiming is an audit risk and underclaiming leaves money on the table.
| Deductible expense | Deductible? | Notes |
| Loan interest | Yes — fully | Must be on investment loan, not owner-occupied |
| Council rates | Yes | Full amount claimed in year paid |
| Water charges | Yes | Amount not passed to tenant |
| Land tax | Yes | Investment properties only |
| Property management fees | Yes | Fully deductible |
| Advertising for tenants | Yes | Fully deductible |
| Insurance premiums | Yes | Building, landlord, contents |
| Repairs and maintenance | Yes | Must be repair, not improvement — see below |
| Capital improvements | No (depreciation only) | Depreciated over asset life — not immediately deductible |
| Building depreciation (Div 43) | Yes | Construction cost amortised over 40 years |
| Plant and equipment (Div 40) | Yes | Fixtures and fittings — requires QS schedule |
| Travel to inspect property | No | Disallowed since 1 July 2017 |
| Borrowing costs (>$100) | Spread over loan term | Establishment fees, mortgage duty, LMI |
| PAYG tax withheld (via PAYG WV) | Reduction in withholding | Lodge PAYG withholding variation with ATO |
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Repairs vs capital improvements — the most common mistake
The ATO draws a clear distinction between repairs (restoring something to its original condition is fully deductible immediately) and capital improvements (upgrading or enhancing beyond its original condition must be depreciated). Replacing a broken hot water system with the equivalent model is a repair. Installing a ducted air conditioning system where none existed is a capital improvement.
In practice this line is often unclear and the ATO actively scrutinises rental property claims. Replacing a damaged timber floor with equivalent boards is a repair. Replacing a damaged carpet with timber flooring is arguably an improvement. Your accountant should review the treatment of any significant maintenance spend before it is claimed.
Depreciation: the non-cash deduction that improves your holding cost
Depreciation is one of the most powerful and least understood aspects of investment property taxation. It allows you to claim a deduction for the gradual decline in value of the building and its fixtures, even though you are not actually spending money in the year you claim it.
There are two categories:
- Division 43 (building structure): the construction cost of the building is depreciated at 2.5% per annum over 40 years for residential properties built after 16 September 1987. On a new Springfield property with a construction cost of $380,000, this generates a $9,500 annual deduction for the life of the allowance. Properties built before this date do not qualify for Division 43 depreciation
- Division 40 (plant and equipment): fixtures and fittings with a determinable effective life such as carpet, hot water systems, dishwashers, blinds, air conditioning units are depreciated separately at rates determined by the ATO. For post-1 July 2017 purchases, only brand new plant and equipment can be depreciated; used items in a second-hand property cannot
A quantity surveyor’s tax depreciation schedule is required to claim these deductions. The schedule typically costs $500 to $800 and pays for itself many times over in the additional deductions it unlocks for new properties. Established properties with older improvements have fewer depreciable assets but the Division 43 building deduction still applies where construction post-dates 1987.
Depreciation turns a cash-neutral investment property into a cash-positive one on a tax basis. A property that generates a $5,000 real cash shortfall after all expenses might produce a $15,000 taxable loss once depreciation is added. For a 37% bracket investor that is $5,550 in additional tax savings from a deduction that costs nothing in the year it is claimed.
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How depreciation reduces your weekly holding cost
$650,000 new Springfield house · 37% tax bracket · Div 43: $9,500/yr · Div 40: $3,200/yr
Without depreciation
$255/wk
With Div 43 only
$187/wk
With Div 43 + Div 40
$165/wk
A $700 quantity surveyor's schedule unlocks approximately $4,700 per year in additional tax savings on this property through depreciation deductions that require no additional cash outlay.
Negative vs Positive Gearing: A Side by Side Comparison
The following example uses a $600,000 investment property in Brisbane with an interest-only loan at 6.5%, comparing a lower-rent negatively geared scenario against a higher-rent positively geared scenario.
| Â | Negatively Geared | Positively Geared |
| Annual gross rent | $26,000 ($500/wk) | $31,200 ($600/wk) |
| Loan interest (IO at 6.5%) | $39,000 | $39,000 |
| Council rates and insurance | $4,500 | $4,500 |
| Property management (8%) | $2,080 | $2,496 |
| Maintenance and repairs | $1,500 | $1,500 |
| Total annual costs | $47,080 | $47,496 |
| Net annual cashflow (before tax) | –$21,080 | –$16,296 |
| Tax saving (37% bracket) | $7,800 | $6,030 |
| Real after-tax annual cost | $13,280 | $10,266 |
| Real after-tax weekly cost | $255/week | $197/week |
Both scenarios in this example are negatively geared before tax as the rent does not cover the total costs in either case at current interest rates. The higher-rent scenario is closer to neutral and the after-tax weekly cost is lower, but neither generates a cash surplus from operations alone.
This is the reality of most Brisbane and South East Queensland investment properties at current rates. The investment thesis is based on capital growth, the property appreciating in value over time, with the tax-assisted holding cost making the annual deficit manageable while waiting for that growth to materialise.
Full Worked Example: New Springfield Investment Property
The following example uses a new three-bedroom house in Springfield, purchased off the plan for $650,000 with a 10% deposit and an interest-only loan. It incorporates building depreciation and shows the full after-tax holding cost calculation for a buyer in the 37% tax bracket.
| Item | Amount |
| Purchase price | $650,000 |
| Loan amount (90%, LMI waiver via FHG) | $617,500 |
| Interest rate (IO variable) | 6.5% p.a. |
| Annual interest | $40,138 |
| Gross weekly rent | $550/week ($28,600/yr) |
| Property management (8.5%) | $2,431/yr |
| Council rates | $2,200/yr |
| Insurance | $1,800/yr |
| Maintenance allowance | $1,500/yr |
| Total annual costs | $48,069 |
| Annual shortfall (before tax) | $19,469 |
| Tax saving at 37% | $7,203 |
| Real after-tax annual cost | $12,266 |
| Real after-tax weekly cost | $236/week |
| Building depreciation (Div 43, est.) | $4,200/yr (new build) |
| After depreciation taxable loss | $23,669 |
| Tax saving including depreciation | $8,757 |
| Real after-tax weekly cost with depreciation | $209/week |
The key takeaway is that depreciation on a new property reduces the real after-tax weekly holding cost from $236 to $209 – a difference of $27 per week, or $1,404 per year, simply by obtaining a quantity surveyor’s schedule and including the building depreciation deduction. For a new property, this is one of the most accessible and highest-returning tax strategies available.
Use our Negative Gearing Calculator to run your own numbers. Enter your purchase price, loan amount, estimated rent, income, and the calculator will return your real after-tax weekly holding cost at your marginal rate, with and without depreciation.
PAYG Withholding Variation: Get Your Tax Saving Every Fortnight
Most investment property owners receive their negative gearing tax benefit once a year when they lodge their tax return. For many investors, particularly those managing a tight cash flow in the early years of holding the property, waiting 12 months for the tax refund is a genuine financial challenge.
A PAYG withholding variation (sometimes called a PAYG variation or tax variation) allows you to access the tax saving as reduced tax withheld from your salary each fortnight throughout the year, rather than receiving it as a lump sum at tax time. Your employer withholds less tax each pay cycle, effectively giving you a pay rise equivalent to the annual tax benefit spread across the year.
How to lodge a PAYG withholding variation
- You or your accountant lodge a PAYG withholding variation application with the ATO at the start of the financial year, estimating the rental income, deductible expenses, and depreciation for the coming year
- The ATO processes the application and issues a notice of assessment of expected withholding
- Your employer adjusts your PAYG withholding for the year in line with the ATO’s instruction
- You receive more take-home pay each fortnight rather than a refund at tax time
For the Springfield example above, a $23,669 expected taxable loss at 37%, the PAYG variation would reduce annual withholding by approximately $8,757, or roughly $337 per fortnight. This directly reduces the real cash flow impact of holding the property week to week.
A PAYG variation requires an accurate estimate of your property income and expenses for the year. If your actual loss ends up higher than estimated, you receive a refund at tax time. If it is lower, you may have a tax liability. Your accountant should review the variation estimate annually and adjust it if circumstances change.
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PAYG withholding variation: two ways to receive your tax saving
Based on $7,800 annual tax saving at 37% bracket (no depreciation) or $12,500 including Div 43 + Div 40 depreciation
Monthly cashflow improvement with variation
$650/month
Including Div 43 + Div 40 depreciation
+$480/fortnight
Loan Structure and Tax Efficiency for Investment Properties
How your investment loan is structured directly affects how much interest you can claim as a deduction. The ATO determines deductibility based on the purpose of the borrowing, not the security. Interest on funds borrowed to purchase an income-producing investment is deductible. Interest on funds borrowed for personal purposes is not.
Keep investment and personal loans completely separate
If your investment loan and your home loan are in the same account, or if you have ever mixed personal and investment borrowings in the same loan, you have a mixed-purpose loan. The ATO requires you to apportion the interest, calculating what proportion relates to each purpose, which is complex and often results in a lower deductible amount than if the loans had been kept clean from the start.
The correct structure for an equity-funded investment purchase is three separate loan splits: your home loan, the equity draw used as the investment deposit (fully deductible because borrowed for investment purposes), and the investment property loan. Each has a clear, single purpose and every dollar of interest on the investment-related splits is fully deductible without apportionment.
Interest only vs principal and interest
Many investors use interest-only (IO) repayments on investment loans during the growth phase of their portfolio. The logic is that interest repayments are fully deductible, while principal repayments are made with after-tax dollars and do not produce a tax benefit. By making IO repayments and redirecting the surplus to the non-deductible home loan instead, investors reduce their non-deductible debt faster while maximising the deductible investment debt.
This is a legitimate and widely used tax-efficient structure when implemented correctly. It requires that the surplus from IO repayments is genuinely redirected to the home loan rather than spent. An accountant and a broker should both be involved in modelling this approach before implementation to confirm the after-tax benefit is real for your specific income and debt position.
For a detailed guide on loan structure for investment properties including cross-collateralisation risks and the three-split approach, see our blog: Using Equity to Buy an Investment Property in Australia.
Is Negative Gearing Worth It?
This is the right question to ask and the honest answer is: it depends entirely on the property, the growth market, and your personal financial position. Negative gearing is frequently misunderstood as a strategy in its own right. It is not. It is a tax treatment applied to a property investment that happens to cost more than it earns. Whether the overall investment is worthwhile depends on capital growth, not on the tax deduction.
When negative gearing makes sense
- You are buying in a genuine growth market with strong underlying demand fundamentals including population growth, infrastructure investment, employment diversification, and housing supply constraints that support long-term capital appreciation
- The after-tax holding cost is genuinely manageable at your income level, after PAYG variation the weekly cost fits within your budget with a reasonable buffer for unexpected costs such as vacancy or repairs
- You are in a 37% or 45% tax bracket where the deduction has the most impact and the after-tax cost is meaningfully lower than the pre-tax cost
- You have a medium to long-term investment horizon of at least seven to ten years, allowing sufficient time for capital growth to outweigh the cumulative holding cost
- The property has strong depreciation potential — new builds in growth corridors combine growth upside with maximum depreciation benefits
When negative gearing does not make sense
- The after-tax weekly holding cost is financially stressful even with a PAYG variation, if you are relying on the property not being vacant and rates not rising further to make ends meet, the risk profile is too high
- You are buying in a low-growth or oversupplied market where capital appreciation is uncertain, the tax saving is real but it does not compensate for a property that does not grow in value
- You are in a lower tax bracket where the deduction has less impact and the real after-tax cost is only marginally lower than the pre-tax cost
- You have significant other financial obligations, HECS debt, young children, single income household, that reduce the effective cash buffer for a prolonged vacancy or unexpected property expense
The best investment property is one that you can hold through the full cycle including rate rises, vacancies, and market corrections without financial distress. The tax benefit of negative gearing makes a good investment better. It does not make a poor investment acceptable.
Negative Gearing in the Queensland Market: What Investors Are Buying in 2026
South East Queensland remains one of Australia’s most compelling investment property markets in 2026 for investors who understand the demand drivers and accept a negatively geared holding cost while capital growth works in their favour.
Springfield and the Ipswich corridor
The Springfield and Ripley Valley corridor is one of the strongest population growth stories in Australia. New residential estates are absorbing thousands of buyers per year, rental vacancy rates remain very low, and the urban infrastructure supporting the region (Springfield Central, the Ipswich Motorway upgrades, the rail network) continues to improve. New three to four bedroom houses in the $550,000 to $700,000 range generate gross rental yields of approximately 4.5% to 5.2%, making the after-tax holding cost manageable for 37% bracket investors at current rates.
Logan City corridor
The Logan corridor (Springwood, Shailer Park, Marsden, Browns Plains) offers established rental markets with above-average yields relative to purchase price. Entry prices are lower than inner Brisbane, which improves the rental yield ratio and reduces the annual shortfall. Flagstone and Yarrabilba are emerging areas with new stock and strong rental demand from families relocating from inner suburbs.
The 2032 Olympic infrastructure cycle
Queensland is entering the most significant infrastructure investment cycle in its history ahead of the 2032 Brisbane Olympics. Cross River Rail, the Sunshine Coast rail link, the Valley to Airport tunnel, and multiple highway upgrades are all committed and underway. Infrastructure investment of this scale historically precedes property value appreciation in surrounding corridors. Investors who position in areas adjacent to these infrastructure projects in the three to five years before completion have historically achieved above-average capital growth.
Stanford Financial does not provide property investment advice and recommends seeking guidance from a licensed buyer’s agent or property investment adviser before selecting a specific investment property. Our expertise is in structuring the finance, optimising the loan structure for tax efficiency, and accessing the right lender for your investment profile.
How Stanford Financial Helps Investment Property Buyers
Stanford Financial is a Brisbane-based mortgage brokerage with access to over 50 lenders including specialist investment lenders who assess rental income more generously and offer investment-specific rate discounts.
- Investment loan structuring: we set up the equity draw, home loan, and investment loan as separate splits from day one, ensuring every dollar of investment interest is clearly deductible without apportionment complications
- Rental income treatment: different lenders include different proportions of rental income in serviceability assessments. Some use 80% of gross rent, others use 100%. We identify the lenders whose rental income treatment maximises your borrowing capacity for your specific property
- Interest only terms: we compare which lenders offer IO terms on investment loans and for how long – IO periods vary from two to ten years depending on the lender and can be extended in many cases
- Rate comparison: investment loan rates vary more across lenders than owner-occupied rates. A broker with access to 50 plus lenders finds meaningful rate differences that compound over a 10 to 20 year investment hold period
- Pre-approval before you purchase: we arrange investment loan pre-approval that confirms your borrowing capacity before you commit to a property, so you negotiate from a confirmed financial position
- Coordination with your accountant: for complex structures involving trusts, SMSF, or multiple investment properties, we work alongside your accountant to ensure the loan structure and the tax strategy are aligned
Frequently Asked Questions
How does negative gearing work in Australia?
Negative gearing in Australia means your investment property generates more costs than rental income, producing a net loss. That loss is deductible against your other taxable income, typically your salary, which reduces your total income tax for the year. The tax saving equals your marginal tax rate multiplied by the loss. At a 37% marginal rate, a $20,000 property loss saves $7,400 in tax, reducing the real net loss to $12,600 per year or approximately $242 per week.
What can I claim on a negatively geared property?
Deductible expenses include loan interest, council rates, water charges (not passed to tenant), land tax, property management fees, insurance, advertising for tenants, repairs and maintenance (not capital improvements), and borrowing costs spread over the loan term. Building depreciation and plant and equipment depreciation are also claimable and can significantly increase the total deduction. Travel to inspect the property has not been deductible since 1 July 2017.
Is negative gearing better at a higher income?
Yes. The value of the negative gearing deduction is proportional to your marginal tax rate. A $20,000 annual property loss saves $9,000 in tax at the 45% bracket, $7,400 at 37%, and $6,500 at 32.5%. Higher income earners receive a larger tax saving from the same property loss, which is why negatively geared property investment is more common and more financially advantageous for high-income earners.
What is a PAYG withholding variation?
A PAYG withholding variation is an application to the ATO to reduce the amount of tax withheld from your salary each fortnight, based on your expected investment property loss for the year. Instead of receiving your tax benefit as a lump sum refund after lodging your tax return, you receive it as increased take-home pay throughout the year. It requires an estimate of annual rental income, expenses, and depreciation. Your accountant lodges the application and your employer adjusts withholding accordingly.
Does negative gearing reduce borrowing capacity?
Not directly but in fact the opposite. Most lenders include a portion of rental income (typically 80%) in the serviceability assessment when you apply for an investment loan, which increases your assessed income and therefore your borrowing capacity. However, the ongoing monthly shortfall on an existing investment property is counted as a committed expense when assessing borrowing capacity for a subsequent purchase. Managing the after-tax holding cost and building an income buffer between investment properties is important for investors planning to grow a portfolio.
What is the difference between negative gearing and positive gearing?
Negative gearing means total property costs (interest plus all expenses) exceed rental income, producing a loss that is tax-deductible against other income. Positive gearing means rental income exceeds all costs, producing a taxable net profit. Neutral gearing means income and costs approximately break even. Most Australian investment properties with a mortgage are negatively geared at current interest rates. Positive gearing is more common on properties with high rental yields, lower purchase prices, or significant equity (and therefore lower or no debt).
Book a Free Investment Loan Assessment
Stanford Financial helps Brisbane and Queensland investors structure investment loans correctly from day one, access the right lenders for their rental income and equity position, and build portfolios that grow alongside their financial goals. Our service costs you nothing.
Call 0483 980 002 or book your free investment loan assessment online. We typically respond within one business day.
Related Calculators and Guides
- Negative Gearing Calculator: enter your property figures to instantly calculate your real after-tax weekly holding cost
- Rental Yield Calculator: model gross yield, net yield, cashflow, and compare two properties side by side
- Repayments Calculator: compare interest only vs principal and interest repayments at your loan amount and rate
- LVR and Equity Calculator: calculate your usable equity and what it can fund as an investment property deposit
- Using Equity to Buy an Investment Property: full guide to equity access, the rule of four, loan structuring, and the QLD market
- Investment Loans: Stanford Financial’s full investment property lending service
Reviewed and Verified
All content published on this website has been reviewed and verified by Steven Beach, Lending Director at Stanford Financial. With over 20 years of experience in finance and lending, Steve ensures that every article, guide, and resource accurately reflects current lending practices, lender policies, and the real-world outcomes he sees working with Australian borrowers every day. His hands-on experience across home loans, investment lending, and specialist finance means the information you read here is grounded in genuine industry expertise – not just theory.
