Does negative gearing an investment property only benefit people on higher incomes?

Friday, 31st January 2014

We talk to a lot of people about property investing and one of the more common questions we are asked is how does negative gearing work and is it only for people on high incomes.

First lets look at exactly what negative gearing is. Negative gearing is when the cost of investing is higher than the return you achieve. Or another way of looking at this would be, when your annual net income is less than the interest you are paying on your investment property loan plus deductible expenses such as property management fees and repairs.

You then deduct the cost of holding your investment property from your overall income. This then reduces your tax bill and this is the part that people find attractive.

Lets now look at how negative gearing works across three different income brackets $60,000, $100,000 and $250,000 a year by using the ATO Tax Bracket table below.


Taxable income

Tax on this income




19c for each $1 over $18,200


$3,572 + 32.5c for each $1 over$37,000


$17,547 + 37c for each $1 over $80,000

$180,001 and over

$54,547 + 45c for each $1 over $180,000


If you were looking to purchase a $400,000* investment property here is the estimated tax refund and then the cost of the property to you each week after you receive your tax refund.



Estimate Tax Refund

Weekly cost











As you can see from these examples negative gearing is a benefit to the majority of income earners if they decide to invest in property. Whether you earn $60,000 and receive an estimated $5,535 tax return or you earn $250,000 and receive an estimated $7,250 tax return.

The ability to negatively gear an investment property reinforces the important point regarding cash flow. To build an effective property portfolio you need to have good cash flow, this means the less money coming out of your pocket each week the better position you are in regarding affordability and also your ability to grow your portfolio.

If you would like to know more about negative gearing and its relationship with cash flow and affordability please attend our next seminar or contact


*Please note that cash flows vary from property to property all investment properties have different incomes and expenses.