Negative Gearing

What negative gearing means

Negative gearing concerns an investment funded with borrowing where rent does not cover the relevant costs, including interest. It does not mean the property is profitable, and a rental loss is not automatically the same amount as cash needed from the owner.

ASIC Moneysmart's negative gearing definition describes borrowing to invest where rental returns are below borrowing costs. The tax result requires a separate assessment of income and allowable deductions under the rules for the relevant year.

Separate cash payments from tax deductions

A loan repayment may contain interest and principal. Both affect money leaving the bank account, but repaying principal is not a rental expense deduction. Eligible depreciation deductions can affect a tax calculation without a matching cash payment that year. Private use and the purpose of borrowed funds can also affect deductible amounts.

The ATO's rental property expenses guidance distinguishes deductible expenses from principal repayments. Check current ATO guidance and speak with a registered tax agent about a particular property.

Worked example: the cash gap

These invented figures illustrate budgeting only. Rent received is $30,000 for the year. Operating payments total $8,000, interest payments $24,000 and principal repayments $6,000.

The cash result before tax is $30,000 minus $8,000 minus $24,000 minus $6,000: an $8,000 shortfall. Looking only at operating payments and interest gives a $2,000 gap, which understates cash needed by $6,000. This example does not determine allowable deductions, taxable income or a refund.

Read the rental cash flow definition for payment timing and the difference between an annual average and cash due this month. The depreciation explanation covers why some deductions are separate from cash expenses.

Using estimates carefully

The Negative Gearing Calculator produces a scenario under its stated assumptions. It does not determine deductibility or model every ownership arrangement, policy transition or tax circumstance. Do not treat an estimated tax reduction as money already available to pay bills.

ASIC's investment property guide flags 2026 Budget announcements about negative gearing and CGT. This glossary does not establish their legislative status, commencement or application to a particular purchase. Verify applicable rules before relying on a tax scenario.

General information only, not financial, tax, legal, credit or investment advice. A tax deduction does not reimburse the full cost. Property prices and rent can fall, and no capital gain is assumed here.

Sources checked: ASIC Moneysmart and ATO guidance, 15 September 2026.

Last updated: 15 September 2026.