How to Use the Negative Gearing Calculator

Enter the expected weekly rent and vacancy allowance for the property. Then enter the investment loan, interest rate and annual property expenses.

If you expect depreciation or capital works deductions, enter an annual estimate separately. Finally, enter your other taxable income so the calculator can estimate the possible income-tax effect of a rental profit or rental loss.

The calculator estimates:

• Gross annual rent;
• Rental income after vacancy;
• Deductible loan interest;
• Property management fees;
• Other deductible rental expenses;
• Depreciation and capital works deductions;
• Taxable rental profit or loss;
• Indicative tax effect;
• Pre-tax cash flow;
• After-tax cash flow; and
• Approximate break-even weekly rent.

What Is Negative Gearing?

Negative gearing generally describes an investment arrangement where deductible expenses associated with earning investment income exceed the assessable income produced by the investment.

For a rental property, this can occur when deductible costs such as loan interest and eligible property expenses exceed rental income.

If the result is negative, the property has produced a rental tax loss under this simplified model.

Negative Gearing Property Example

How Does Negative Gearing Reduce Tax?

Where a rental loss is deductible against other assessable income, it can reduce taxable income.

A simplified example is:

The amount of tax saved depends on the taxpayer’s overall income and marginal tax position.

This is why negative gearing does not create the same tax saving for every investor.

Negative Gearing Does Not Mean the Government Pays the Loss

A tax deduction does not generally reimburse the full amount of a property loss.

For example, if an investor incurs a $10,000 deductible rental loss and the relevant marginal tax effect is approximately 32%, the simplified tax saving may be around $3,200.

The investor still economically bears the remaining loss.

Cash Flow vs Negative Gearing

Cash flow and taxable rental income are related but are not the same calculation.

Cash flow

Cash flow looks at actual money received and paid.

Taxable rental result

The taxable result is based on assessable income and deductible expenses under tax rules.

The two amounts can differ because some items have different cash and tax treatment.

Why Principal Repayments Are Separated

A principal repayment reduces the balance of your mortgage. It is therefore a real cash outflow, but it is generally different from loan interest for tax purposes.

The calculator treats:

• Loan interest as part of the simplified deductible expense calculation; and
• Principal repayments as cash-flow outgoings only.

This prevents the calculator from incorrectly treating the entire mortgage payment as a tax deduction.

How Is Investment Property Interest Calculated?

This calculator uses a simplified annual interest estimate:

For example, on a $500,000 investment loan at 6%:

$500,000 × 6% = $30,000

Actual interest charged can differ because balances can change throughout the year and offset accounts, redraws and loan transactions can affect interest.

What Rental Expenses Can Be Deductible?

Rental property expenses may potentially include items such as:

• Interest on eligible investment borrowing;
• Property management fees;
• Council rates;
• Water charges;
• Landlord insurance;
• Body corporate or strata expenses;
• Eligible repairs and maintenance;
• Land tax;
• Advertising for tenants;
• Some legal expenses;
• Pest control;
• Gardening;
• Accounting costs;
• Capital works deductions; and
• Eligible depreciation.

Tax treatment depends on the nature and timing of each expense.

Repairs vs Capital Improvements

Repairs and maintenance are not automatically treated the same way as capital improvements.

A repair may restore an existing item, while an improvement may materially upgrade or replace an asset.

Capital expenditure may need to be depreciated, claimed as capital works over time, or treated as part of the property’s CGT cost base rather than claimed immediately.

What Is Depreciation in a Negative Gearing Calculation?

Depreciation can represent a tax deduction without creating the same amount of current-year cash outflow.

This is one reason a property can be negatively geared for tax purposes while its cash-flow shortfall is smaller than the tax loss.

What Are Capital Works Deductions?

Eligible construction expenditure on certain income-producing buildings and structural improvements may be deductible over time under capital works rules.

This calculator groups entered depreciation and capital-works amounts together because both can reduce the simplified taxable rental result without necessarily representing a matching current cash expense.

What Is Positive Gearing?

Positive gearing generally occurs when assessable investment income exceeds the deductible expenses associated with producing that income.

For a rental property:

The resulting rental profit can increase taxable income.

Can a Property Be Cash-Flow Positive but Negatively Geared?

Yes, it can happen in some circumstances.

A property may generate positive cash flow before tax but have enough eligible non-cash deductions, such as depreciation, to produce a taxable rental loss.

The reverse can also occur because principal repayments can create cash outflows without reducing taxable rental income.

How Vacancy Affects Negative Gearing

Vacancy reduces collected rent but many ownership costs continue.

A higher vacancy rate therefore generally:

• Reduces assessable rental income;
• Reduces cash flow; and
• May increase a rental loss under a simplified model.

How Higher Interest Rates Affect Negative Gearing

Where investment-loan interest is deductible, a higher interest rate can increase deductible interest and also increase the investor’s real cash cost.

For example, on a $500,000 loan:

• 5% interest ≈ $25,000 per year;
• 6% interest ≈ $30,000 per year;
• 7% interest ≈ $35,000 per year.

The higher deduction does not eliminate the additional economic cost of the interest.

How the Calculator Estimates the Tax Effect

For an Australian resident individual, the calculator compares an indicative income-tax amount:

The difference is displayed as the estimated tax effect.

If the property produces a tax loss, the tax effect may appear as an estimated tax saving. If the property produces taxable rental profit, it may appear as additional estimated tax.

Does Negative Gearing Always Produce a Tax Refund?

No.

The ultimate tax outcome depends on the investor’s broader taxable income, PAYG withholding, deductions, offsets and other tax circumstances.

A deductible rental loss can reduce taxable income, but that does not necessarily mean the investor receives a separate cash refund equal to the displayed tax effect.

Does This Calculator Include Medicare Levy?

The calculator includes an optional simplified 2% Medicare levy effect.

It does not fully calculate:

• Medicare levy low-income thresholds;
• Family thresholds;
• Exemptions;
• Medicare levy surcharge; or
• Private health insurance effects.

Does Negative Gearing Affect Capital Gains Tax?

Negative gearing and capital gains tax are separate tax concepts, although some property expenditure and deductions can affect the eventual CGT calculation.

For example, certain capital works deductions and cost-base adjustments can be relevant when the property is eventually sold.

For a sale estimate, use the Capital Gains Tax Property Estimator.

Negative Gearing vs Property Cash Flow

Use this calculator when you want to understand the relationship between rental income, tax deductions and an indicative tax effect.

If you primarily want to analyse pre-tax investment cash flow and rental yield, use the Property Cash Flow Calculator.

Negative Gearing Calculator Assumptions

This calculator assumes:

• Weekly rent is annualised using 52 weeks;
• The entered vacancy allowance reduces scheduled rental income;
• Property management fees apply to collected rent;
• The loan is used for income-producing investment purposes;
• Loan interest is estimated using the entered annual balance and rate;
• Principal repayments are not treated as deductible interest;
• All entered property expenses are eligible deductions;
• The entered depreciation and capital works amount is deductible;
• The rental profit or loss can be reflected against other taxable income in the simplified tax model;
• The optional Medicare levy effect is simplified;
• No tax offsets, HELP repayments, Medicare levy surcharge or other income tests are included;
• No capital gains tax is calculated;
• No ownership apportionment is included; and
• Results are estimates rather than a tax return calculation.

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