Negative Gearing Australia Calculator

Negative gearing is a tax strategy used by Australian property investors to reduce their taxable income. This calculator helps you determine how much tax you can save by negative gearing your investment property.

What is Negative Gearing?

Negative gearing occurs when the total expenses of an investment property exceed its income. In Australia, investors can deduct these losses from their taxable income, potentially reducing their tax liability to zero or even resulting in a tax refund.

The Australian Taxation Office (ATO) allows investors to claim deductions for expenses such as interest on mortgages, property management fees, council rates, insurance, and maintenance costs.

Note: Negative gearing is only available to Australian residents who own an investment property. It is not available to companies or trusts.

How to Calculate Negative Gearing

The negative gearing ratio is calculated by dividing the total annual expenses of the property by the annual rental income. The result is expressed as a percentage.

Negative Gearing Ratio = (Total Annual Expenses / Annual Rental Income) × 100

A negative gearing ratio greater than 100% means the property is negatively geared. For example, if your property costs $30,000 per year to run and generates $20,000 in rental income, your negative gearing ratio would be 150%.

Negative Gearing vs Positive Gearing

Positive gearing occurs when the rental income from a property exceeds the total expenses. This means the investor is not negatively geared and is effectively paying for the property with rental income rather than deducting losses.

Negative Gearing	Positive Gearing
Expenses exceed income	Income exceeds expenses
Tax deductions reduce taxable income	No tax deductions
Potential tax refund	No tax benefit

Investors typically choose negative gearing because it can provide significant tax savings, though it requires careful financial management to ensure the property remains profitable.

Tax Implications of Negative Gearing

When you negative gear your property, the ATO allows you to deduct the excess expenses from your taxable income. This can lead to:

A reduction in your taxable income
Potentially no tax payable
A tax refund if your deductions exceed your taxable income

Important: The ATO has strict rules about what expenses can be claimed. Only deductible expenses should be included in your negative gearing calculation.

Example Calculation

Let's look at an example to illustrate how negative gearing works. Suppose you have an investment property with the following details:

Expense	Annual Cost
Mortgage interest	$15,000
Property management	$5,000
Council rates	$2,000
Insurance	$1,000
Maintenance	$3,000
Total expenses	$26,000

If your property generates $20,000 in annual rental income, your negative gearing ratio would be calculated as follows:

Negative Gearing Ratio = ($26,000 / $20,000) × 100 = 130%

This means your property is negatively geared at 130%, and you can deduct $6,000 ($26,000 - $20,000) from your taxable income.

FAQ

Can I negative gear any type of property?: No, negative gearing is only available for residential investment properties. Commercial properties are not eligible.
What expenses can I claim for negative gearing?: You can claim mortgage interest, property management fees, council rates, insurance, maintenance, and some capital works expenses. The ATO has a list of deductible expenses.
Is negative gearing worth it?: Negative gearing can be beneficial if you can achieve a high negative gearing ratio and your tax rate is high. However, it requires careful financial management to ensure the property remains profitable.
Can I negative gear if I live in the property?: No, negative gearing is only available for investment properties where you do not live. If you live in the property, you can only claim deductions for expenses you would incur if you rented it out.
How do I report negative gearing to the ATO?: You must include your negative gearing deductions in your tax return. The ATO will calculate your taxable income based on your rental income and deductions.