If you’re a property investor or looking to become one, it’s important to understand what negative gearing is as well as the possible benefits, risks and tax considerations that come with it.

What is negative gearing and what is positive gearing?

Gearing is when you borrow money to invest, and it’s typically talked about in the context of investment properties. The income earned from your investment property is either positively or negatively geared.

  • A property is positively geared when your rental return (the amount of rent you receive from your tenants) is higher than your interest repayments and other property-related expenses (e.g. strata levies, council and water rates).
  • A property is negatively geared when your rental return is less than your interest repayments and other property-related expenses.
  • A property can be neutrally geared if the expenses and income are roughly equal.

Positive gearing benefits and tax considerations

The income you get from a positively geared property can put more money into your pocket and help you more confidently meet your loan repayments. It can also help you set money aside to spend on other things. Keep in mind that if your property is positively geared, the net rental income will be subject to income tax.

Negative gearing benefits and tax considerations

The key benefit of negative gearing is that any net rental loss you incur during the financial year may be offset against other income you earn, such as your salary. This in turn reduces your taxable income and how much tax you have to pay.

Rental expenses you can claim as tax deductions

You may be able to claim the interest portion of your loan repayments and some other rental expenses as tax deductions, provided your property is rented or available for rent.

Capital Gains Tax​

Just like you'll pay tax if you earn rental income from your investment property, you'll also pay tax on any net profit you make when you sell the property. If you make money from selling your investment property, your profit is generally a capital gain, and the tax on this amount is your Capital Gains Tax (CGT). ​

How much CGT you pay depends on a few factors. For example, if you sell at a profit after more than a year of ownership, you may be eligible for a discount on your CGT.

For more information on CGT, check out our quick guide to it or visit the Australian Tax Office (ATO) website.​

Positive or negative gearing – which option is best for you?

Positive and negative gearing strategies both have benefits and drawbacks. The strategy you adopt will depend on your personal circumstances, current income and debts, and risk preferences.

If you’re unsure, consider talking to a financial advisor, accountant or property investing specialist for personalised advice. To find out more about what you can and can't claim on a rental property, visit the ATO website.

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Things you should know

  • It’s important to remember that tax laws are complex, and you should ensure that you’ve confirmed you can claim an expense before including it in your tax return. Reliable sources of information include the Australian Taxation Office (ATO), your accountant or financial planner.

    The Australian income year ends on 30 June. You have from 1 July to 31 October to lodge your tax return for the previous income year. If you use a registered tax agent to prepare and lodge your tax return, you may be able to lodge later than 31 October.

    Tax law is subject to change. For the latest information, check the ATO website, or speak to your accountant or financial advisor.

    The information provided is of a general nature and doesn’t take into account your personal financial situation – we suggest you seek independent taxation and financial advice.

    This page is intended to provide general information only and does not take into account your individual objectives, financial situation or needs. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.

    Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.