What negative gearing actually is
You're negatively geared when your costs exceed your rental income. The ATO allows the shortfall to be deducted because a rental property is an income-producing asset. There are three states a property can be in: negatively geared (a loss), neutrally geared (roughly breaking even), or positively geared (a surplus).
Most Australian property investors with a mortgage are negatively geared right now, particularly with the RBA cash rate sitting at 4.10% and investment loan rates running approximately 6.5% to 7.0% a year. On a $600,000 investment loan, that's $39,000 to $42,000 in annual interest alone.
To make the three scenarios concrete: a negatively geared property might bring in $26,000 in rent against $47,000 in costs, a $21,000 shortfall, worth a $7,800 tax saving at the 37% bracket and leaving a real cost of $255 a week. A neutrally geared property might see $43,000 in rent against $44,000 in costs, an almost break-even position with little to deduct and close to zero real weekly cost. A positively geared property might bring in $52,000 against $44,000 in costs, an $8,000 surplus that's added to your taxable income rather than reducing it, worth an extra $154 a week in your pocket.
How the deduction actually works
The mechanics are simple: your property loss is subtracted from your income, which reduces your taxable income, which reduces the tax you pay at your marginal rate. The critical point, though, is that the tax saving does not make you whole. It reduces the net loss. It doesn't eliminate it.
Take someone on a $120,000 salary with a $21,080 property loss. Their taxable income drops to $98,920, and the resulting tax saving is $7,800 a year. How much that saving is worth depends heavily on the bracket you're in: on the $45,001 to $120,000 bracket (32.5%), a $21,080 loss saves $6,851 in tax, leaving a real cost of $273 a week. On the $120,001 to $180,000 bracket (37%), the same loss saves $7,800, leaving $255 a week. On the $180,001-plus bracket (45%), it saves $9,486, leaving $221 a week. The deduction is worth more the higher your bracket, which is exactly why negative gearing suits higher income earners more than lower ones.
What you can and can't claim
Loan interest is fully deductible. So are council rates, water charges, land tax, property management fees, advertising for tenants, insurance, and repairs and maintenance. Borrowing costs above $100 are spread over the loan term rather than claimed upfront. Capital improvements aren't an immediate deduction either, they're depreciated instead. And travel to inspect your own investment property has not been deductible since 1 July 2017.
There's an important distinction between a repair and a capital improvement. Replacing a broken hot water system with an equivalent one is a repair, fully deductible in the year it happens. Installing a new air conditioning system where there wasn't one before is a capital improvement, and has to be depreciated over time instead.
Depreciation itself splits into two categories. Division 43 covers the building structure: 2.5% a year over 40 years for residential properties built after 16 September 1987. Division 40 covers fixtures and fittings with a determinable life, carpet, hot water systems, dishwashers, blinds, air conditioning. You'll need a quantity surveyor's depreciation schedule to claim either, which typically costs $500 to $800.
On a $650,000 new Springfield house at the 37% bracket, depreciation makes a real difference to the weekly cost. Without any depreciation, the cash holding cost is $255 a week. Claiming Division 43 alone brings it to $187 a week. Claiming both Division 43 and Division 40 brings it to $165 a week, an extra $4,700 a year in tax savings on top of the basic deduction.
Negative versus positive gearing, side by side
Take a $600,000 Brisbane property on an interest-only loan at 6.5%. Negatively geared, it might bring in $26,000 a year in rent ($500 a week), against $39,000 in interest, $4,500 in rates and insurance, $2,080 in property management (8%), and $1,500 in maintenance, a total of $47,080 in costs. That's a pre-tax shortfall of $21,080, a tax saving of $7,800 at the 37% bracket, and a real after-tax cost of $255 a week.
The same property positively geared might bring in $31,200 a year ($600 a week), against similar costs totalling $47,496 (property management rises slightly to $2,496 at 8% of the higher rent). That's a pre-tax shortfall of just $16,296, a smaller tax saving of $6,030, but a real after-tax cost of only $197 a week, nearly $60 a week cheaper than the negatively geared scenario despite the smaller tax benefit. Higher rent beats a bigger deduction, every time.
A full worked example: new Springfield investment property
Say you buy a new $650,000 property with a 90% loan (LMI waived) of $617,500 at 6.5% interest-only, costing $40,138 a year in interest. Gross weekly rent is $550, or $28,600 a year. Property management at 8.5% costs $2,431, council rates $2,200, insurance $1,800, and a maintenance allowance $1,500, for total annual costs of $48,069. That leaves a pre-tax annual shortfall of $19,469.
At the 37% bracket, the tax saving is $7,203, bringing the real after-tax annual cost to $12,266, or $236 a week. Add building depreciation on the new build, roughly $4,200 a year under Division 43, and the taxable loss grows to $23,669, worth a tax saving of $8,757. With depreciation factored in, the real after-tax weekly cost drops to $209.
Getting your tax saving every fortnight instead of waiting
A PAYG withholding variation lets you access your annual tax benefit as reduced tax withheld from your pay throughout the year, rather than as a lump sum at tax time. Your accountant lodges the application with the ATO at the start of the year, estimating your rental income, deductible expenses and depreciation. The ATO issues a notice of expected withholding, your employer adjusts what's withheld from your pay, and you get more take-home pay each fortnight.
On the Springfield example above, an $8,757 annual saving works out to roughly $337 extra a fortnight. Without a variation, you'd pay full tax all year, run a monthly out-of-pocket shortfall of around $1,105, and get a $7,800 lump sum refund the following year. With a variation, the monthly shortfall drops to around $455, with an extra $300-plus landing every fortnight instead, smoothing out the cashflow rather than making you wait for it.
Loan structure and tax efficiency
Keep your investment and personal loans completely separate. Mixed-purpose loans force the ATO to apportion the interest, which reduces what you can deduct. The clean structure is three separate loan splits: your home loan, the equity draw used as the investment deposit (fully deductible, because it was borrowed for investment purposes), and the investment property loan itself.
Many investors also choose interest only over principal and interest on the investment loan, keeping the interest fully deductible while directing surplus cash to pay down non-deductible debt elsewhere, like the home loan. This is a legitimate and widely used structure when it's set up correctly.
Is negative gearing worth it?
It tends to make sense when you're buying into a genuine growth market with real fundamentals behind it, population growth, infrastructure investment, employment diversification, constrained housing supply, when the after-tax holding cost is manageable at your income level, when you're on the 37% or 45% bracket where the deduction does the most work, when you've got a medium to long horizon of seven to ten years minimum, and when the property has strong depreciation potential, typically a new build in a growth corridor.
It tends not to make sense when the after-tax weekly cost would be financially stressful even with a PAYG variation, when you're buying in a low-growth or oversupplied market with uncertain capital appreciation, when you're on a lower tax bracket where the deduction does relatively little, or when you've got significant other financial obligations, HECS debt, young children, a single income household, competing for the same cashflow.
The best investment property is one you can hold through a full cycle, rate rises, vacancies, market corrections, without financial distress. The tax benefit of negative gearing makes a good investment better. It doesn't make a poor investment acceptable.
What Queensland investors are buying in 2026
Springfield and the Ipswich corridor are one of the strongest population growth stories in Australia right now. New three to four bedroom houses in the $550,000 to $700,000 range generate gross rental yields of roughly 4.5% to 5.2%.
The Logan City corridor covers established markets like Springwood, Shailer Park, Marsden and Browns Plains, with Flagstone and Yarrabilba emerging as newer growth areas.
The lead-up to the 2032 Olympics is also shaping the picture, with Cross River Rail, the Sunshine Coast rail link, the Valley to Airport tunnel, and multiple highway upgrades all under way. Infrastructure investment at this scale has historically preceded property value appreciation in the surrounding corridors.
Stanford Financial doesn't provide property investment advice, and recommends seeking guidance from a licensed buyer's agent or property investment adviser before selecting a specific investment property.
How Stanford Financial helps investment property buyers
We're a Brisbane-based mortgage brokerage with access to more than 50 lenders, including specialist investment lenders. We help structure investment loans with separate splits from day one, compare how different lenders treat rental income (some count 80% of gross rent, others count more), compare interest-only terms across the panel, arrange pre-approval before you buy, and coordinate with your accountant along the way.
Frequently asked questions
How does negative gearing work in Australia?
When your property costs exceed the rent it earns, the loss is deductible against your other income, reducing the tax you pay. The saving reduces your real out-of-pocket cost, but doesn't eliminate it.
What can I claim on a negatively geared property?
Loan interest, council rates, insurance, property management fees, repairs and maintenance, and depreciation on the building and fittings. Capital improvements are depreciated rather than claimed upfront, and travel to inspect the property is not deductible.
Is negative gearing better at a higher income?
Yes. The deduction is worth more the higher your marginal tax rate, since it's a direct function of your bracket.
What is a PAYG withholding variation?
An application your accountant lodges with the ATO to reduce the tax withheld from your pay throughout the year, so you receive your expected tax saving as extra take-home pay each fortnight rather than as a refund at tax time.
Does negative gearing reduce my borrowing capacity?
Not directly, but the monthly shortfall is typically counted as a committed expense in a lender's serviceability assessment.
What's the difference between negative, neutral and positive gearing?
Negative means costs exceed rent, producing a deductible loss. Neutral means they roughly balance. Positive means rent exceeds costs, producing taxable income rather than a deduction.
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