What is gearing?
Gearing refers to using borrowed money to invest. In property, it describes the relationship between your rental income and your ownership costs. It comes in two flavours — negative and positive.
Negative gearing
Your property expenses — interest, rates, management, maintenance — are more than the rent you receive. You're making a loss.
This loss can be offset against your other taxable income, reducing the tax you pay. The goal is that long-term capital growth more than compensates for the short-term cash shortfall.
Positive gearing
Your rental income is more than all your ownership costs — so you're making a profit from day one.
The upside is passive income straight away. The trade-off is you'll pay income tax on the surplus, and positively geared properties may offer lower capital growth potential — though not always.
Real tax example — negative gearing
| With investment property | Without | |
| Gross income | $180,000 | $180,000 |
| Rental loss | -$12,000 | $0 |
| Net taxable income | $168,000 | $180,000 |
| Estimated tax payable | ~$47,200 | ~$51,600 |
| Tax saving | ~$4,400 | — |
Which is better?
There's no universal answer — it depends on your income, tax situation and goals.
- •High income earners often benefit more from negative gearing because the tax offset is worth more at their marginal rate
- •Others prefer positive gearing for certainty and immediate cash flow
- •Many investors hold a mix of both across their portfolio
Negative gearing doesn't make you money directly. It reduces your tax bill while you wait for capital growth to do the heavy lifting. Whether that suits your situation is a conversation worth having with both your accountant and your broker.
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