Negative Gearing

Negative gearing happens when the costs of owning an investment property - things like loan interest, depreciation, rates, insurance, agent's fees and repairs - add up to more than the rental income it earns in a year, leaving you with a net loss on the property.

Historically, that loss hasn't been a special tax break sitting in the law with its own rules - it's just the ordinary tax system doing what it always does: your assessable income (including rental income) gets added together, your allowable deductions (including the costs of earning that income) get subtracted, and the result is your taxable income. Because Australia hasn't ring-fenced a loss on one asset to only offset income from that same asset, the loss has been able to combine with your other income - like your salary - reducing your overall taxable income and, in turn, your tax bill. That's changing for some properties from 1 July 2027 - see Negative Gearing Reform below.

"Gearing" just means borrowing money to fund an investment. "Negative" describes the situation where the costs exceed the income the asset produces, before any capital growth is counted.

So negative gearing isn't a specific provision with its own name written into the tax law. It's the outcome of three ordinary features of the system operating together: rental income is assessable, the costs of earning it are deductible, and - until now - those losses haven't been quarantined to the asset, so they could be applied against any of your other income, including the income you earn from your job.

From 1 July 2027, that third feature changes for certain properties. Losses on established residential property acquired after Budget night (12 May 2026) are quarantined rather than deductible against your salary or other income. See Negative Gearing Reform for how that works and what's grandfathered.