Positive Gearing vs Negative Gearing in Australia: What Changes From 1 July 2027

What Positive and Negative Gearing Actually Mean

Gearing describes the relationship between a property's rental income and the cost of holding it. A property is negatively geared when deductible costs are higher than the rent, and positively geared when the rent is higher. A negatively geared property costs the investor money to hold, even if part of that loss may be deductible.

A positively geared property is different. It produces more income than it costs to hold before tax, or at least after the investor has allowed for the major recurring expenses. This can create surplus cash flow, which may help with buffers, reinvestment, debt reduction or simply reducing pressure on the household budget.

That distinction matters. An investor should ask, “Will I get a tax deduction?” They should also ask, “What is the property costing me each year, what am I relying on to make the investment worthwhile, and what happens if the assumptions are wrong?”

This is where a cash-flow-first mindset can help. It does not mean every property must be heavily cash-flow positive from day one. It means the investor understands the holding position clearly and does not rely on tax relief or speculative capital growth to hide weak numbers. For a broader framework, read the guide on cash flow in an Australian property portfolio.

A Simple Side-by-Side Gearing Example

To compare the two positions, use a simplified investment property example. Assume an investor buys a $500,000 property with a 20% deposit. That leaves a $400,000 loan. If the interest rate is 5% on an interest-only basis, the annual interest cost is $20,000.

Now add $5,000 per year for other ownership costs such as insurance, maintenance and basic holding expenses. This gives a simplified total yearly expense figure of $25,000 before allowing for every possible cost. In a real assessment, investors also need to consider property management fees, vacancy, council rates, water charges, strata where relevant, land tax exposure, repairs and future interest-rate movement.

Negative gearing scenario

In the negative gearing scenario, assume the property produces $18,000 in annual rent. With $25,000 in total yearly expenses, the property has a $7,000 annual shortfall before tax. If an investor could deduct that loss and their marginal tax rate in this simplified example was 45%, the tax benefit would be $3,150. That would still leave an estimated after-tax cash shortfall of $3,850 for the year.

Positive gearing scenario

Now compare that with a property that produces $32,000 in annual rent while carrying the same simplified $25,000 in yearly expenses. That creates a $7,000 surplus before tax. If that $7,000 surplus was taxed at the same 45% illustrative rate, the tax payable would be $3,150, leaving approximately $3,850 in after-tax income.

The Real Difference Is Cash Flow Pressure

On paper, both scenarios involve a $7,000 difference before tax. But the real investor experience is very different. In the negatively geared scenario, the investor needs to fund a shortfall. In the positively geared scenario, the property is contributing surplus cash after costs and tax in the simplified example.

Using the same assumptions, the after-tax cash flow gap is about $7,700 per year. One property costs around $3,850 to hold after tax. The other produces around $3,850 after tax. Over 10 years, that difference is roughly $77,000.

This is where negative gearing can become uncomfortable for investors who want to scale. A property that needs constant owner contributions can reduce flexibility. It can make it harder to build buffers, absorb repairs, handle vacancy or prepare for the next purchase. It may also affect borrowing conversations because lenders consider income, expenses, existing commitments and overall serviceability.

That does not mean a negatively geared property is automatically a poor investment. Some investors may accept short-term holding costs if the asset quality, location, borrowing position, income and capital growth assumptions are strong enough. But the numbers need to support that decision. The investor should know exactly what they are paying each year to hold the asset and why that trade-off may be worth considering.

For investors comparing options before buying, the property calculators and forecasting tools can help model different rent, interest-rate and expense assumptions before committing to a purchase.

Why Tax Deductions Should Not Be The Main Reason To Buy

Negative gearing can be useful in some circumstances, but the tax result should not be the sole reason an investor buys. A deduction may reduce taxable income, but it does not usually remove the full cash loss. The investor still needs to fund the difference, and that cash has an opportunity cost.

Investors also need to be careful about what costs are deductible, what costs must be claimed over time, what costs are capital in nature and how ownership structure affects the outcome. The tax treatment of rental income, rental expenses, depreciation and capital gains can change depending on personal circumstances and professional advice.

That is why a gearing conversation should sit inside a broader investment strategy. The property needs to make sense on asset quality, tenant demand, holding risk, lending impact, future saleability and the investor’s ability to manage the cash-flow position without stress.

Capital Growth Can Help, But It Should Not Be A Blind Rescue Plan

One of the most common arguments for negative gearing is that the property may grow strongly in value. That can happen, but it should not be assumed. Property values move through cycles, and growth can vary widely between states, suburbs, streets, property types and price points.

Using the same simplified example, imagine a $500,000 property grows by $200,000 over 10 years. That sounds attractive, but the investor still needs to consider selling costs, capital gains tax, holding costs, time, risk and the opportunity cost of funding losses along the way.

Capital gains tax matters too. The ATO says that from 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax rate on capital gains that accrue after that date. How this applies to your property depends on when you bought, your ownership structure and advice from your accountant.

Growth matters, but quality matters more. A property with weak rental demand, limited resale appeal, poor building condition or thin buyer depth can still create problems even if the broader suburb looks promising.

How Investors Can Compare Gearing Properly

A useful gearing comparison needs more than rent minus interest. It should test the full holding position, asset quality, lending impact and the investor’s personal risk tolerance. Two properties can have the same purchase price but completely different outcomes because the location, tenant profile, expenses, maintenance risk and resale demand are different.

The first step is to model the property conservatively. Use realistic rent, allow for vacancy, include property management, insurance, council rates, water charges, strata if applicable, maintenance, land tax where relevant and a buffer for interest-rate changes. A property that works solely under perfect assumptions may not be as safe as it looks.

Investors should also avoid comparing positive and negative gearing in isolation. A positively geared property in a weak market may not be better than a slightly negative property in a stronger long-term location. At the same time, a negatively geared property with poor fundamentals can become a drain on cash flow without delivering the growth needed to justify the holding cost.

When Positive Gearing May Help

Positive gearing may be useful when an investor wants stronger holding power, less pressure on household cash flow or more capacity to build buffers. A property that contributes surplus income can help with maintenance, vacancy, debt reduction or future portfolio planning.

But positive gearing should not be treated as a shortcut. Some high-yield properties carry higher maintenance risk, weaker owner-occupier appeal, less reliable tenant demand or lower long-term growth prospects. The income may look attractive, but investors still need to assess why the yield is high and whether the asset is genuinely strong.

A balanced investment decision should look at income, risk, growth evidence, property condition and exit appeal together. Positive cash flow is useful, but it does not replace due diligence.

When Negative Gearing May Still Be Considered

Negative gearing may still be considered by some investors when the shortfall is manageable and there is a well-evidenced reason for accepting the holding cost. That reason might relate to asset quality, location scarcity, income growth potential, long-term demand or broader portfolio strategy.

The key word is “evidenced”. A property should not be accepted simply because a tax benefit softens the loss. Investors need to understand how much cash they must contribute, how long they can sustain it, what they expect the asset to do and what happens if interest rates, rents, vacancy or repairs move against them.

This is why investors should compare the gearing position with their broader strategy, not against a generic rule. For some investors, cash flow resilience may matter most. For others, a balanced asset with strong fundamentals may be more important. The right answer depends on the investor’s circumstances, risk position and professional advice.

What the 2027 Negative Gearing Changes Mean For Your Numbers

From 1 July 2027, negative gearing on residential property is limited to new builds, and properties held at 7:30pm AEST on 12 May 2026 are exempt. For an established home bought after that date, a rental loss is no longer a simple deduction against wages, so the cash shortfall you can carry becomes the real test.

Run your numbers twice: once with a tax deduction and once without. If the property still works with no deduction, it passes. If it stops working once the deduction is removed, it depends on tax relief rather than on the asset.

A positively geared or neutral property is less exposed because it does not rely on a deduction. A new build keeps the deduction but needs the same scrutiny on price, build quality, rent and resale appeal, because a tax benefit does not make a weak purchase strong. The ATO page does not define a new build, so confirm the definition for the specific property with your accountant before you exchange contracts.

As checked on 28 October 2026, the ATO says the negative gearing and capital gains tax reforms are now law: from 1 July 2027, negative gearing for residential property is limited to new builds, and properties held at 7:30pm AEST on 12 May 2026 are exempt.

As checked on 28 October 2026, the ATO says that from 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax rate on capital gains, and that the reforms apply to gains that accrue after 1 July 2027.

As checked on 28 October 2026, the Reserve Bank of Australia cash rate target is 4.60%, in effect since 30 September 2026, which is the borrowing-cost backdrop for any gearing comparison.

As checked on 19 October 2026, the Treasury Budget 2026-27 page said losses on established homes bought after the cut-off could offset other residential property income, including capital gains, and be carried forward, but not offset wages.

Sources: ATO tax reform page, updated 29 June 2026 (ato.gov.au); Reserve Bank of Australia (rba.gov.au); Treasury Budget 2026-27 (treasury.gov.au).

How much tax do I get back from negative gearing?

A deduction reduces taxable income, so the refund is a share of the loss set by your marginal tax rate. In the example above, a $7,000 loss at a 45% rate returns $3,150 and leaves $3,850 for you to fund. The tax refund never returns the full loss.

Can I still negatively gear an established home I buy after 12 May 2026?

From 1 July 2027 the ATO says negative gearing on residential property is limited to new builds. At the Budget, Treasury said losses on established homes bought after the cut-off could offset other residential property income, including capital gains, and carry forward, but not offset wages. Confirm how this applies to you with an accountant.

How much cash buffer should I hold for a negatively geared property?

Hold enough to cover the full pre-tax shortfall plus repairs, vacancy and a rise in interest rates, because a tax deduction does not remove the cash loss. Many investors test a higher rate than today's before buying. The right buffer depends on your income, other debts and comfort with risk.

Where does a buyers agent fit into a gearing decision?

A buyers agent can test rent, holding costs, growth evidence and asset quality before you commit, so the gearing result rests on checked numbers rather than assumptions. WTP's investment property buyers agent service works alongside your accountant and broker, who advise on tax and lending. This is general information, not advice.

Related reading: cash flow in an Australian property portfolio, buying property in Australia in 2026, refinancing an investment property portfolio and the WTP resources and calculators.

Related Reading For Investors

Before making an offer, the next step is to test the asset properly. The guide on data-driven due diligence for property investors explains how to review comparable sales, rental evidence, stock levels, days on market and suburb pressure before buying.

The strongest approach is strategy-first. Decide what role the property needs to play in the portfolio. Some investors need income support. Others may be seeking a balanced asset with both rental strength and long-term growth drivers. Others may need to protect borrowing capacity or avoid adding pressure to household cash flow.

The gearing position should support the strategy, not distract from it. If the property works solely because the tax result sounds appealing or because growth is assumed without evidence, the investor should slow down and test the numbers again.

Services That Connect To Smarter Gearing Decisions

Positive and negative gearing should be assessed inside a broader buying strategy. The right support can help investors test cash flow, asset quality, risk, lending impact and long-term fit before they buy.