What Is Negative Gearing? How Does Negative Gearing Work in Australia? (2025 Guide)


If you’re exploring property investment strategy in Australia, chances are you’ve come across the term negative gearing. It’s one of those financial concepts that can sound more complicated than it really is  but understanding it could help you reduce your tax and grow your wealth strategically.


So, how does negative gearing work, and is it still worth it in 2025? Let’s break it down clearly, especially for first-time or early-stage investors.

What Is Negative Gearing?

Negative gearing occurs when the income you earn from an investment property (usually rent) is less than the expenses of owning it such as interest on your home loan, maintenance costs, insurance, and more.

In short: you’re making a loss  at least on paper.

But here’s the catch  that loss can be claimed as a deduction on your taxable income, reducing the amount of tax you pay.

Example:

  • Rental income: $25,000/year
  • Expenses (loan interest, rates, maintenance): $30,000/year
  • Loss: $5,000 → This $5,000 can be used to offset your taxable income.

How Does Negative Gearing Work in Australia?

In Australia, negative gearing has long been a tax strategy used by property investors. Here’s how it works in action:

1.  You purchase an investment property using a loan.
2. Your rental income does not cover all the associated expenses.
3. You report this annual loss to the ATO.
4. The loss is deducted from your overall taxable income.
5. This can potentially place you in a lower tax bracket or reduce your tax bill significantly.

In 2025, negative gearing rules remain unchanged  as of now, investors can still claim full deductions on eligible expenses tied to negatively geared properties.

Check the official ATO page for updates

Calculating Negative Gearing: What Counts?

To calculate whether you’re negatively geared, consider the following:

Expense Category      Typical Inclusions
Loan Interest      Only the interest portion, not principal
Council & Water Rates      Recurring local government costs
Insurance      Building & landlord insurance
Maintenance & Repairs      Only non-capital improvements
Property Management Fees      Agent commission, advertising, admin costs
Depreciation      On fittings, fixtures, and construction costs


Calculation Formula:

Net Rental Position = Rental Income – Deductible Expenses
If the result is negative → you are negatively geared.

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