What is Negative Gearing?
At Fox Mortgage Services, we’re all about helping you navigate the finance side of your property journey – whether you’re a first-time investor or growing your portfolio. Right now, terms like negative gearing and capital gains tax (CGT) are back in the spotlight. So, what do they really mean for you?
Put simply, negative gearing is when the cost of holding an investment property – including mortgage interest, maintenance, insurance, and property management fees – is more than the rental income you receive.
For example, if your property earns $2,800 in rent each month, but it costs you $3,200 to keep it running, you’re negatively geared. The benefit? That $400 monthly shortfall can be offset against your taxable income, which could reduce your overall tax bill.
🔗 Learn more about negative gearing from the ATO
Positive vs. Negative Gearing: What’s Better?
It really depends on your goals. Positive gearing means your rental income exceeds your expenses, while neutral gearing is when you break even. Many Aussie investors choose negative gearing for the long-term capital growth potential – hoping the property’s value increase will outweigh the short-term loss.
Why Do Investors Choose Negative Gearing?
It is worth noting that In Australia, it’s estimated two thirds of rentals (just over one million) lose money. So, why would anyone want an asset that’s making them a loss?
✔ Potential tax savings – especially for high-income earners
✔ Long-term capital growth – sell the property for more than you bought it
✔ Building wealth through property while leveraging the tax system
What is Capital Gains Tax (CGT)?
When you sell your investment property, any profit you make is subject to Capital Gains Tax – which is taxed as part of your income.
If you’ve held the property for over 12 months, you may be eligible for a 50% CGT discount, meaning you only pay tax on half of the profit.
🔗 ATO guide to Capital Gains Tax
Why the Political Debate Around Negative Gearing and CGT?
Negative gearing often sparks debate, especially during election season. Some argue it drives up property prices and gives wealthier Aussies an unfair advantage. Others believe it’s an important tool for encouraging investment and boosting housing supply.
Recently, the Australian Council of Social Service (ACOSS) released a report calling for:
- Halving the CGT discount to 25%
- Limiting negative gearing to offsetting only investment income (not salary)
- Phasing out negative gearing on existing properties over 5 years
🔗 Read the ACOSS report: Homes for Living, Not Wealth Creation
Thinking About Buying an Investment Property?
Before you jump in, it’s a smart move to speak with a tax advisor or financial planner. And when it comes to sorting your investment loan – that’s where we come in.
At Fox Mortgage Services, we understand the ins and outs of investment lending and work with a wide range of lenders to tailor finance solutions that match your goals – whether you’re PAYG, self-employed, or somewhere in between.
📲 Get in touch with us today – we’ll walk you through your investment loan options and help you build a strategy that works for you.