Estimate the tax impact and after-tax cash flow of a negatively geared rental property.
This calculator estimates the tax saving and after-tax cash flow of a negatively geared investment property. Negative gearing occurs when the deductible expenses of owning a rental property (including loan interest, property management fees, maintenance, council rates, depreciation, and other costs) exceed the rental income earned. The resulting net rental loss can be offset against other income (such as salary) to reduce the investor's taxable income, creating a tax saving. This calculator shows the gross rental loss, the annual tax saving, and the effective after-tax cash flow cost of the negative gearing position.
The tax saving from negative gearing is calculated by multiplying the net rental loss by the investor's marginal tax rate. The after-tax cost is the difference between the actual out-of-pocket cash shortfall and this tax saving.
Formula: Net Rental Loss = Annual Expenses − Annual Rental Income. Annual Tax Saving = Net Rental Loss × Marginal Tax Rate. After-Tax Cash Flow Cost = (Cash Expenses − Rental Income) − Tax Saving.
Example: A$26,000 annual rental income, A$35,000 annual expenses (including A$25,000 interest, A$5,000 property management and rates, A$5,000 depreciation), marginal rate 37%: Net loss = A$9,000. Tax saving = A$9,000 × 37% = A$3,330. The actual cash shortfall (excluding non-cash depreciation of A$5,000) is A$4,000 (A$26,000 income − A$30,000 cash expenses), but after the tax saving of A$3,330, the after-tax cash cost is only A$670/year. (Note: depreciation is a non-cash deduction — if included in expenses, the actual cash outflow is higher than the loss figure suggests.)
Australia is one of the few developed countries where negative gearing — the ability to deduct net rental losses against other income — is available without restriction to individual investors, making it a prominent feature of the Australian property investment landscape. Under the Income Tax Assessment Act 1997 (ITAA 1997), Australian tax residents can deduct rental property losses (including interest on investment loans) from their assessable income in the year they are incurred, providing an immediate tax benefit. This is in contrast to some other countries where rental losses can only be carried forward to offset future rental income, not offset against current-year salary. Alongside negative gearing, Australian property investors benefit from the 50% Capital Gains Tax (CGT) discount: if an investment property is held for more than 12 months, only 50% of the capital gain is included in assessable income, meaning the effective CGT rate is half the investor's marginal rate. This combination — negative gearing reducing current income tax while the property appreciates, followed by a discounted capital gain on sale — is the classic Australian property investment strategy. Deductible expenses for rental properties include: loan interest, property management fees, council rates, water charges, insurance, repairs and maintenance, depreciation on plant and equipment (at ATO effective life rates), capital works (Division 43) deductions at 2.5% per year on qualifying construction costs, and other costs related to earning rental income. The loan principal repayment is not deductible — only the interest component is. Negative gearing is only beneficial if the tax saving plus the expected capital growth exceed the ongoing cash shortfall of the investment, making capital growth assumptions critical to whether a negatively geared property creates long-term wealth.
Negative gearing is when the deductible costs of holding an investment property (primarily loan interest, plus fees, rates, and other expenses) exceed the rental income earned. The resulting net rental loss is offset against the investor's other income (such as salary), reducing their taxable income and thus their tax bill. Australia allows this loss to be deducted against other income in the same year it is incurred — an arrangement that is relatively unusual internationally and which makes leveraged property investment particularly popular among Australian taxpayers on higher marginal rates.
Deductible rental property expenses include: loan interest (NOT principal repayment), property management fees, council rates, water charges, landlord insurance, repairs and maintenance (not improvements — those are capital costs), advertising for tenants, depreciation on plant and equipment (carpets, hot water systems, appliances — at ATO effective life rates), capital works deductions (2.5% per year on eligible construction costs for properties built after certain dates), and other costs of earning rental income. Non-deductible costs include loan principal repayments, capital improvements (depreciable over time as capital works or Division 40), and personal costs. The ATO website provides a detailed guide to rental deductions.
If you hold the investment property for more than 12 months before selling, any capital gain (after deducting the cost base, which includes purchase costs and capital improvements but is reduced by depreciation claimed) qualifies for the 50% CGT discount — meaning only half the gain is included in your assessable income and taxed at your marginal rate. This is a significant benefit: a property investor on a 45% marginal rate effectively pays only 22.5% effective CGT on a long-term capital gain. This discount, combined with the current-year tax saving from negative gearing, forms the two pillars of the classic Australian property investment tax strategy.
No — negative gearing applies to any investment where borrowing costs (interest on a loan used to purchase the investment) and other deductible expenses exceed the investment income. Shares, managed funds, and other income-producing investments can also be negatively geared. However, property is the most common asset class for negative gearing in Australia, partly because loan interest on investment loans is fully deductible, and partly because property is widely held with a clear expectation of capital growth. Share investing via margin lending also involves negative gearing concepts, though the leverage and volatility dynamics differ significantly from property.
Negative gearing: expenses > income → net rental loss, tax saving in current year, rely on capital growth for overall return. Positive gearing: income > expenses → net rental profit, taxable in current year, generates cash flow surplus from the outset. Neutral gearing: income = expenses → no current-year loss or profit, no immediate tax impact. Australian investors have historically favoured negative gearing as a strategy for higher-value properties in growth markets, using the tax offset to subsidise the holding cost while waiting for capital growth. Positive gearing is more common for regional or higher-yield properties where rental income is relatively strong.
Negative gearing and the 50% CGT discount have been subjects of ongoing policy debate in Australia. Various proposals to limit, grandfather, or reform negative gearing have been raised in federal election campaigns. As of the date of this calculator, the existing rules remain unchanged — negative gearing losses are fully deductible against other income, and the 50% CGT discount applies to assets held more than 12 months. However, investors should be aware that policy changes are possible and factor this risk into long-term investment decisions. Consult the ATO or a registered tax agent for the current rules.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial or taxation advice. Negative gearing tax outcomes depend on your specific tax position, the nature and amount of your deductible expenses, and the applicable ATO rules — which change over time. Depreciation claims require a quantity surveyor report and ATO compliance. The interaction between negative gearing and capital gains tax is complex and personal to your circumstances. Consult a registered tax agent or financial adviser before making property investment decisions.