Negative Gearing

Negative gearing is a situation where an investment property produces less rental income than it costs to hold, creating a tax-deductible loss. In Australia, this loss can be used to reduce taxable income from other sources (most commonly salary) and provides an immediate tax benefit for high-income investors.

The Australian Taxation Office reports that 1.114 million property investors (49.3% of all property investors) claimed a net rental loss in 2023-24, totalling $10.2 billion. Negative gearing is a deliberate strategy, not a failure: the investor is betting that capital growth over time will exceed the annual losses incurred while holding the property.

The strategy works when three conditions hold: the investor has a strong enough income to sustain ongoing losses, interest rates are manageable, and capital growth actually materialises. When any of these fails (particularly in rising rate environments) negative gearing can become a serious drag on wealth. Roughly 22% of property investors sell within five years, often because they underestimated the holding cost or the required growth rate.

Negative gearing is often confused with positive cashflow investing, which is the opposite strategy: buying properties where rent covers costs from day one, generating income rather than relying on capital growth.