What is negative gearing in Australia?

What is Negative Gearing in Australia?

Negative gearing occurs when the expenses of owning an investment property exceed the income it generates. This results in a financial loss.

How It Works

For example, if your rental income is $20,000 per year but your mortgage interest, rates, maintenance, and other deductible expenses total $25,000, you have a negative gearing loss of $5,000.

Tax Benefits

In Australia, you can claim this loss against your other income (like your salary) to reduce your taxable income. This means you pay less tax overall, even though you're losing money on the property.

Key Points

• Negative gearing is legal and common in Australia
• You can only claim losses on investment properties, not your home
• Deductible expenses include mortgage interest, rates, insurance, maintenance, and property management fees
• You cannot claim the mortgage principal repayment itself
• The strategy relies on property value growth to eventually make a profit

Important Considerations

Negative gearing can be risky because you're relying on future property appreciation to offset current losses. If property values fall or interest rates rise, your losses may increase. You also need sufficient income to support the ongoing losses.

For detailed information about investment property deductions and tax rules, visit the Australian Taxation Office (ATO) rental property guide.

This is general information only. Check official sources before acting.