What is the difference between negative and positive gearing?
A rental is negatively geared when its deductible costs, including loan interest, are more than the rent. That makes a tax loss. It is positively geared when the rent is higher, which makes a taxable profit. From 1 July 2027, losses on established homes bought after 7:30pm AEST on 12 May 2026 cannot reduce wages.
By Ankit PaliwalUpdated
Which loss rules apply to your property?
- Existing holdings at the cutoff
Property already held at 7:30pm AEST on 12 May 2026 keeps its current tax treatment.
- Established residential property bought after the cutoff
From 1 July 2027, rental losses can only offset residential property income and gains.
- Newly built homes
Newly built homes keep access to the current loss rules. The new home definition remains a consultation draft.
How do negative and positive gearing compare?
Both terms describe the same sum: rent minus the costs you can claim. Those costs include interest, rates, insurance, management, repairs and depreciation. Loan principal is not one of them. If the result is below zero, the property is negatively geared. If it is above zero, it is positively geared.
Negative gearing means you top up the shortfall from your own money each year. Under the old rules you could use the loss to cut tax on your wages. Positive gearing means the property pays its way, but you pay tax on the profit. Neither label tells you whether the property will grow in value.
What does the 2027 law change?
The ATO confirms the change is law. From 1 July 2027, losses on established residential property bought after 7:30pm AEST on 12 May 2026 can only offset residential property income and gains. A loss on one of these homes can no longer reduce your tax on wages.
Existing holdings keep their current rules. Newly built homes are exempt from the loss limit. Treasury has released a draft definition of what counts as new. That definition is still under consultation and could change, so check the status with your tax agent before you buy.
What happens to capital gains tax?
A separate change starts on the same day. For gains that build up from 1 July 2027, the 50% capital gains tax discount is replaced by indexing the cost base to inflation, plus a 30% minimum tax on the real gain. Gains built up before that date keep the 50% discount. Your main home stays exempt.
So the two changes hit at different points. The gearing change affects the yearly loss on some homes. The capital gains change affects the tax when you sell. A property can be caught by one, both or neither, depending on when you bought it and what type of home it is.
| Question | Negatively geared | Positively geared |
|---|---|---|
| Rent compared with deductible costs | Rent is lower | Rent is higher |
| Tax result for the year | A rental loss | A rental profit, added to your income |
| Your cash each year | You fund the gap | The property covers its costs, before principal |
| Loss against wages from 1 July 2027 | Only if held at the cutoff or a new build | Not relevant, as there is no loss |
One property, two rent levels
- Assume yearly deductible costs of $36,000, including $26,500 of interest.
- At $30,000 rent a year, the result is 30,000 - 36,000 = a $6,000 loss. The property is negatively geared.
- At $40,000 rent a year, the result is 40,000 - 36,000 = a $4,000 profit. The property is positively geared.
- The building did not change. Only the rent did, which is why the label can move from year to year.
For investors
Match the cash flow to your goals.
A rental loss and a rental profit suit different budgets. Work out what you can fund each month and what you want the property to do over time. Compare rent, costs and growth potential together. The purchase date and whether the home is new also matter for tax. Your buyer's agency can assess the property strategy while your tax agent checks your position.
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