Positive vs Negative Gearing Explained
Australia's most talked-about property tax strategy. Here's what positive and negative gearing actually mean for your cash flow and tax.
Gearing is whether your investment property makes or loses money each year before tax, and it's the number every Australian investor's tax strategy is built around.
Negative gearing
Your property is negatively geared when expenses exceed income, and that loss reduces your taxable income.
Example: $25,000 rent income – $32,000 expenses (interest, rates, insurance, depreciation) = –$7,000 loss. On a 37% marginal tax rate, that saves you $2,590 in tax.
So you're spending real money to claim a deduction. The only way that trade pays off is if the property grows in value over time.
Positive gearing
Your property is positively geared when income exceeds expenses. You're making money from day one, but the profit gets taxed.
Example: $30,000 rent income – $24,000 expenses = +$6,000 profit. At a 37% tax rate, you owe $2,220 extra, and you're still $3,780 ahead once that's paid.
Which is better?
Depends on your income, your goals, and where you are in the investing timeline. High-income earners often start negatively geared to offset tax while betting on capital growth. Investors closer to retirement tend to prefer positive gearing, because cash flow matters more to them than the deduction. Most properties drift from negative to positive over the years anyway, as rents climb and fixed costs like the mortgage don't.
The takeaway
Don't chase negative gearing because it sounds like a strategy. Chase total return: capital growth plus rental yield, minus every cost. Track both sides of the ledger so you know exactly where you stand at tax time.