Positive vs Negative Gearing Explained

Gearing is simply whether your investment property makes or loses money each year before tax. It's the foundation of every Australian property investor's tax strategy.

Negative gearing

Your property is negatively geared when expenses exceed income. The loss reduces your taxable income.

Example: $25,000 rent income – $32,000 expenses (interest, rates, insurance, depreciation) = –$7,000 loss. If you're on a 37% marginal tax rate, that saves you $2,590 in tax.

You're spending real money to get a tax deduction — the strategy only works 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 you'll pay tax on the profit.

Example: $30,000 rent income – $24,000 expenses = +$6,000 profit. At a 37% tax rate, you owe $2,220 extra tax, but you're still $3,780 ahead.

Which is better?

Neither is inherently better. It depends on your income, goals, and stage of investing:

• High income earners often start negatively geared to offset tax, expecting capital growth
• Investors closer to retirement prefer positive gearing for cash flow
• Most properties shift from negative to positive gearing as rents rise and fixed expenses don't

The takeaway

Don't chase negative gearing for its own sake. Focus on total return — capital growth plus rental yield minus all costs. Track both sides so you know exactly where you stand at tax time.