Negative Gearing

Definition

Negative gearing occurs when the costs of owning an investment property — including loan interest, maintenance, and management fees — exceed the rental income it generates. The resulting loss can be offset against other taxable income under Australian tax law, reducing the investor's overall tax bill.

Why It Matters for Property Investors

Negative gearing is one of the most widely used tax strategies in Australian property investment. It allows investors to reduce their taxable income while banking on long-term capital growth. However, it means the property runs at a cash-flow loss, so investors need sufficient income from other sources to sustain the holding costs. It's most effective in high-growth, lower-yield markets where capital gains over time outweigh short-term losses.