Negative Gearing Explained: How It Works for Australian Property Investors

What Is Negative Gearing?

Negative gearing occurs when the costs of owning an investment property exceed the income it generates. The "loss" can be offset against your other income (like your salary), reducing your overall tax bill.

For example, if your rental property earns $25,000 per year in rent but costs $32,000 in mortgage interest, management fees, repairs, and depreciation, you have a $7,000 loss. This $7,000 reduces your taxable income.

How Negative Gearing Reduces Your Tax

At a marginal tax rate of 37%, a $7,000 negative gearing loss saves you $2,590 in tax. The actual out-of-pocket cost of holding the property is the total loss minus the tax benefit.

| Item | Amount | |------|--------| | Rental income | $25,000 | | Total expenses | $32,000 | | Net loss | -$7,000 | | Tax benefit (at 37%) | $2,590 | | True cost of holding | $4,410 |

Common Deductible Expenses

The ATO allows deductions for expenses directly related to earning rental income:

• Mortgage interest — the largest deduction for most investors
• Property management fees — typically 5-8% of rent
• Council rates and water — ongoing holding costs
• Insurance — landlord and building insurance
• Repairs and maintenance — fixing existing items (not improvements)
• Depreciation — Division 40 (plant & equipment) and Division 43 (building)
• Strata/body corporate fees — for apartments and townhouses

When Does Negative Gearing Make Sense?

Negative gearing is not a strategy on its own — it's a side effect of holding a property that costs more than it earns. It makes sense when:

1. Capital growth potential justifies the holding cost 2. Your marginal tax rate is high enough that the tax benefit is meaningful 3. The property will eventually become positively geared as rents increase

It does not make sense to deliberately lose money just for a tax deduction. The tax benefit only offsets part of the loss.

Tracking Negative Gearing with BrickTrack

BrickTrack automatically calculates your net rental position:

1. Import transactions via bank feeds to capture all income and expenses 2. Categorize expenses using AI-powered auto-categorization 3. View tax position on the dashboard — see your net rental income or loss per property 4. Export to MyTax — Item 21 (Net rent) is pre-filled with your figures

The Tax Position card on your dashboard shows whether each property is positively or negatively geared in real time, so there are no surprises at tax time.

The Bottom Line

Negative gearing is a tool, not a goal. Focus on acquiring properties with strong fundamentals (location, demand, growth potential) and use BrickTrack to keep your expenses organized and your tax position clear.