Understand the difference between negative and positive gearing, how each affects your tax, cash flow, and long-term wealth. Includes worked examples.
Gearing is one of the most discussed — and most misunderstood — concepts in Australian property investing. Put simply, it refers to the relationship between your investment income and your investment expenses. Understanding which side of the equation you sit on has major implications for your tax return, your cash flow, and your long-term wealth strategy.
This guide breaks down both negative and positive gearing with real numbers, so you can make an informed decision about which approach suits your financial situation and goals.
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Worked Example — Negative Gearing (March 2026):
| Item | Amount |
|---|---|
| Purchase price | $750,000 |
| Loan amount (80% LVR) | $600,000 |
| Interest rate (IO) | 6.69% p.a. |
| Annual interest cost | $40,140 |
| Other expenses (rates, insurance, management, maintenance) | $8,500 |
| Total expenses | $48,640 |
| Annual rent ($620/week) | $32,240 |
| Net loss (before depreciation) | −$16,400 |
| Depreciation deductions | $8,000 |
| Total tax loss | −$24,400 |
| Tax saving (at 37% + 2% Medicare) | $9,516 |
| Actual annual cost after tax | $6,884 ($132/week) |
There's no universally "better" gearing strategy — it depends entirely on your income, your goals, and your appetite for short-term cash outlay. Negative gearing is a powerful tool for high-income earners seeking capital growth, while positive gearing suits those who want immediate returns and lower risk.
The most successful investors understand both strategies and adjust their approach as their portfolio and personal circumstances evolve.
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