Negative Gearing and Property Investment Tax in Australia, Explained (2026)

"Gearing" just means borrowing to invest. A property is negatively geared when the deductible costs of holding it, mainly loan interest plus rates, insurance, repairs and management fees, add up to more than the rent it brings in. The property runs at a cash loss.

Under current Australian Taxation Office rules, you can deduct that net rental loss against your other income, including salary and wages. So a salaried investor who makes a $12,000 rental loss reduces their taxable income by $12,000. They are still $12,000 out of pocket in cash terms before tax; the deduction only returns a fraction of that loss (their marginal tax rate), not the whole amount.

Because you are deliberately running at a loss, negative gearing only makes sense as a long-term bet that the property's value, and eventually its rent, will grow enough to more than cover the years of cash losses you funded. MoneySmart, the Government's free money-guidance service, lists the real risks: ongoing cash-flow pressure, interest-rate rises you can't always pass on as higher rent, and the chance that capital growth doesn't arrive.

The opposite, positive gearing, is when rent exceeds your costs and the property makes a profit. That profit is taxable, but it puts cash in your pocket from day one rather than relying on future capital growth.

The tax saving from a rental loss is the loss multiplied by your marginal tax rate, not the loss itself. For 2025-26, the resident marginal rates are 0% up to $18,200, then 16% to $45,000, 30% to $135,000, 37% to $190,000, and 45% above $190,000, plus the 2% Medicare levy for most people. Rates and thresholds change, so confirm them at ato.gov.au before relying on a figure.

Worked example, indicative only. Say you receive $25,000 in rent and your deductible costs are $40,000 (mostly loan interest, plus rates, insurance, management and repairs). Your rental loss is $15,000. If your salary puts you in the 30% bracket, deducting that $15,000 cuts your tax by roughly $4,500, plus around $300 of Medicare levy, so about $4,800 back. You were still $15,000 out of pocket in cash before the refund, leaving you about $10,200 down for the year.

That gap is the point often missed: a deduction reduces tax, it does not refund the whole expense. Negative gearing leaves you genuinely poorer in cash each year. It only pays off if the property's capital growth over time exceeds the after-tax losses you have funded along the way.

Higher earners get a bigger percentage back (a 45% taxpayer recovers 45c plus levy per dollar of loss), which is one reason the strategy has historically favoured high-income investors and is part of why the 2026-27 Budget proposed changes.

The ATO splits rental expenses into three buckets: claim now, claim over several years, or can't claim. Getting the bucket right is where a registered tax agent earns their fee, because the rules on repairs versus improvements and on depreciation are genuinely fiddly.

Generally deductible in the year you pay them:

• Loan interest (the interest portion only, never the principal repayment)
• Council rates, water rates and land tax
• Building, landlord and contents insurance
• Property management and letting fees, advertising for tenants
• Genuine repairs and maintenance to fix wear and tear (repainting, fixing a leaking tap, servicing the heater)
• Body corporate or strata fees, pest control, gardening

Claimed over several years, not immediately:

• Capital works (the building itself) at 2.5% per year over 40 years
• Decline in value (depreciation) of eligible plant and equipment such as appliances and carpets, over their effective life
• Borrowing expenses over $100, spread over five years or the loan term, whichever is shorter

Generally not deductible at all:

• The principal portion of your loan repayments
• The purchase price of the property and stamp duty (these go into the cost base for CGT instead)
• Initial repairs to fix defects that existed when you bought
• Expenses for any period the property was used privately or not genuinely available for rent
• Travel to inspect or maintain a residential rental property (removed for most investors from 1 July 2017)

Depreciation lets you deduct the declining value of two things: capital works (the structure) and plant and equipment (removable items like ovens, dishwashers, carpets and blinds). It is a paper deduction, you claim it without spending fresh cash each year, which is why it can tip a property from positive to negatively geared on paper.

Capital works are deducted at 2.5% per year over 40 years for residential buildings constructed after 15 September 1987. A quantity surveyor's depreciation schedule is the usual way investors substantiate these claims.

The big trap is plant and equipment. Since 7:30pm on 9 May 2017, you generally cannot claim depreciation on second-hand (previously used) plant and equipment in a residential rental property you acquired after that date. So if you buy an established home with an existing oven and air conditioner, you typically can't depreciate those used items, only brand-new ones you install yourself.

Exceptions exist, for example if you bought the property or the asset before the 9 May 2017 cut-off, or for newly built properties. Because the dollar amounts can be significant, this is worth confirming with a registered tax agent or quantity surveyor for your specific property.

When you sell an investment property for more than its cost base, the profit is a capital gain that goes into your taxable income for that year. Your cost base includes the purchase price, stamp duty, legal and agent fees, and certain holding costs, which is why keeping every receipt from purchase to sale matters.

Under current rules, if you are an Australian-resident individual and you have held the property for more than 12 months, the 50% CGT discount applies. Only half the gain is added to your income and taxed at your marginal rate. A $200,000 gain becomes a $100,000 taxable amount. Capital works deductions you claimed along the way generally reduce your cost base, which can increase the gain on sale.

Your own home is normally exempt under the main residence exemption. There is also a "6-year rule": if you move out of your home and rent it out, you can usually keep treating it as your main residence for CGT purposes for up to six years, provided you don't nominate another property as your main residence for that period. If it sits vacant rather than rented, the exemption can continue indefinitely.

The 2026-27 Budget proposed a major CGT change from 1 July 2027 (see the next section). It is intended to apply only to gains that accrue after that date, so gains built up before 1 July 2027 keep their current treatment. Until legislation passes, treat the new regime as announced, not final, and confirm at ato.gov.au.

In the 2026-27 Federal Budget, announced at 7:30pm AEST on 12 May 2026, the Government announced reforms to both negative gearing and capital gains tax, intended to commence on 1 July 2027. These are significant changes that, at the time of writing, are announced policy and should be confirmed against the legislation and the ATO's guidance before you act on them.

Negative gearing, as announced:

• For established residential properties bought after 7:30pm on 12 May 2026, rental losses will only be deductible against rental income (including from other rental properties) or against capital gains from a rental property, not against salary or other income
• Excess losses that can't be absorbed can be carried forward to future years
• Properties you held at 7:30pm on 12 May 2026 (including those under contract awaiting settlement) are grandfathered and keep the current rules until you sell
• Eligible new builds are exempt and keep both negative gearing and the 50% CGT discount, an incentive aimed at new housing supply

Capital gains tax, as announced:

• The 50% CGT discount for individuals, trusts and partnerships is to be replaced with cost-base indexation plus a 30% minimum tax rate on net capital gains
• The change applies only to gains that accrue on or after 1 July 2027; gains built up before then keep the existing 50% discount
• Superannuation funds' CGT treatment is unchanged, and investors in new residential property can choose between the old discount and the new regime when they sell

Because the rules differ depending on when you bought, whether the property is established or a new build, and whether a gain accrued before or after 1 July 2027, this is exactly the kind of situation where independent, registered tax advice is worth getting before you buy, sell or restructure.

Income tax and CGT are federal, but land tax is a state and territory tax, and it varies enough to change whether a property is worth holding. It is charged annually on the total taxable land value you own in a state, above a threshold, and your principal place of residence is generally exempt.

The thresholds differ dramatically. Victoria's general land tax threshold is around $50,000, so most Victorian investors pay land tax from their very first property, and Victoria also has a temporary COVID-19 Debt levy adding a fixed amount plus a surcharge on higher land values. New South Wales has a much higher general threshold (over $1 million for 2025), Queensland's individual threshold is in the hundreds of thousands, and the Northern Territory has no land tax at all. These figures move each year, so check your state revenue office (for example revenue.nsw.gov.au or the Victorian SRO) for the current numbers.

Stamp duty (transfer duty) on purchase is also state-based and is not immediately deductible. It generally forms part of your CGT cost base, reducing your gain when you eventually sell. Foreign buyers face additional surcharge duty and surcharge land tax in several states.

If you own properties across more than one state, you are assessed separately in each, and trusts and companies are often taxed under different (usually less generous) thresholds than individuals. This is another area where a registered agent who knows your states can save real money.

Property tax lives or dies on record-keeping. Keep every document from purchase to sale: the contract and settlement statement, loan statements showing interest, all expense receipts, your depreciation schedule, and records of any capital improvements. The ATO expects you to substantiate every deduction, and rental claims are a long-standing audit focus.

Key deadlines: if you lodge your own return, it is generally due by 31 October. If you are on a registered tax agent's books before that date, you usually get access to their extended lodgment program. If your rental losses are large and predictable, you can apply to the ATO for a PAYG withholding variation so less tax is taken from your pay through the year rather than waiting for a refund; these applications generally need to be in by 30 April for the relevant year.

Only a registered tax agent can charge a fee to prepare or lodge your return or give tax advice. Before you engage anyone, check they are registered on the free public register at the Tax Practitioners Board (tpb.gov.au). The register also shows any conditions or sanctions on their registration. Using a registered agent can also protect you from some penalties if a genuine mistake is made and reasonable care was taken.

Given how much the 2026-27 reforms change the maths for new purchases, and how rules vary by state, property structure and timing, independent advice from a registered tax agent or accountant is genuinely useful here, not a luxury. Confirm any figure in this guide at the official source, because tax thresholds, rates and the status of the announced reforms can change.