Negative Gearing Calculator Australia — Tax Benefit on Investment Property

Negative gearing is the Australian tax structure that lets you deduct an investment property's cashflow loss against your salary and other income. This calculator shows the real out-of-pocket cost — the bit you actually pay after the ATO refunds the tax on your loss.

How negative gearing works

You buy an investment property with a loan. Each year you receive rent and pay expenses — interest, council rates, insurance, repairs, management fees, depreciation. If those expenses exceed the rent, you have a loss.

Australian tax law lets you offset that loss against your other taxable income. The ATO doesn't care that the loss came from property and the income came from salary — they're combined in your tax return, lowering your total tax bill. The size of the refund depends on your marginal tax bracket.

Annual loss = (rent) − (interest + costs + depreciation)
Tax refund = annual loss × marginal tax rate
Net out-of-pocket = annual loss − tax refund

So a $10,000 annual loss in the 37% tax bracket produces a $3,700 tax refund. The actual cash cost of holding the property is $10,000 − $3,700 = $6,300 per year. The Medicare levy adds another 2%, giving slightly higher refunds for most earners.

Worked example: $700,000 investment property

Item	Annual figure
Gross rent ($600/wk × 52)	$31,200
Vacancy allowance (~3 weeks)	−$1,800
Effective rent	$29,400
Loan: $560,000 at 6.5% interest-only	−$36,400
Council & water rates	−$3,200
Insurance (building + landlord)	−$1,500
Body corporate / strata	−$3,000
Property management (7% gross)	−$2,058
Repairs & maintenance	−$1,500
Depreciation (typical new build)	−$8,000
Total expenses	−$55,658
Annual loss before tax	−$26,258
Tax refund @ 37% marginal rate (incl. 2% Medicare)	+$10,240
Tax refund from depreciation alone (paper deduction)	+$3,120
Net out-of-pocket per year	~$16,000

The depreciation portion is the trick — it's a $8,000 deduction with no cash outflow, generating a $3,100+ tax refund every year for 25–40 years (depending on the property's age and structure).

Why negative gearing only works with capital growth

The numbers above show ~$16,000 leaving your wallet every year to hold the property. After 10 years that's $160,000 of after-tax dollars. For the strategy to work, the property's capital growth has to exceed:

1. The cashflow losses you've funded ($160,000)
2. The CGT on the eventual sale (top marginal rate × 50% × gain)
3. Selling costs (agent commission, marketing) — typically 2–3%

A $700,000 property growing at 5% p.a. compound is worth ~$1.14m after 10 years — a $440,000 gross gain. After CGT and selling costs, the net gain might be ~$280,000–$320,000. Subtract the $160,000 of cashflow losses, and the strategy nets ~$120,000–$160,000.

A $700,000 property growing at only 2% p.a. is worth ~$853,000 after 10 years — a $153,000 gross gain. After CGT and selling costs, ~$95,000 net. Subtract $160,000 cashflow losses and you're $65,000 worse off than if you'd never bought.

The single thing that breaks negative gearing is buying in a low-growth area. The tax saving is real, but it's not enough on its own — capital growth has to do the heavy lifting.

Marginal tax rate determines the benefit

The same $10,000 annual loss is worth very different amounts depending on your taxable income:

Marginal rate	Loss = $10,000	Loss = $20,000
16% (income $18k–$45k)	$1,600 saved	$3,200 saved
30% (income $45k–$135k)	$3,000 saved	$6,000 saved
37% (income $135k–$190k)	$3,700 saved	$7,400 saved
45% (income $190k+)	$4,500 saved	$9,000 saved

(Add 2% Medicare levy to most of these.)

This is why negative gearing is most attractive to high-income earners — the same dollar of loss produces a bigger refund. A $20k loss costs a top-bracket earner $11,000 net; the same loss costs a 30%-bracket earner $14,000 net.

Interest-only vs P&I on investment loans

For investment, interest-only loans are common because the entire repayment is tax-deductible. P&I splits into deductible (interest) and non-deductible (principal) portions — only the interest piece feeds the negative gearing calculation.

Interest-only doesn't reduce the loan balance, so capital growth has to deliver all the equity. P&I builds equity through the loan itself but with smaller annual tax deductions. Most investors with a strong cashflow strategy default to interest-only on investment loans for as long as the lender permits (typically 1–5 years before reverting to P&I).

Depreciation: the silent tax benefit

Depreciation is a non-cash deduction on the building's structural value (Division 43, "capital works", typically 2.5% per year over 40 years for buildings constructed after 1987) and fittings (Division 40, plant and equipment).

A quantity surveyor's depreciation schedule typically costs $500–$700 and is fully deductible. For a new build, depreciation alone can deliver $8,000–$15,000 in year one and significant deductions for the next 25 years. For older properties, Division 43 still applies on the structure if built post-1987, but Division 40 is restricted to the original buyer of a new dwelling (post-May 2017 ATO rule).

If you've owned an investment property for years without a depreciation schedule, you've likely missed thousands of dollars in tax refunds. It's almost always worth getting one done.

What this calculator includes

• Gross rental income (with optional vacancy allowance)
• Interest portion of repayments (auto-calculated from loan amount and rate)
• Council rates, water, insurance, body corporate
• Property management fees
• Repairs and maintenance budget
• Depreciation (capital works + plant and equipment estimate)
• Marginal tax rate calculation (uses 2025-26 brackets)
• Final net out-of-pocket cost

For full borrowing-side modelling — how an investment property affects your future borrowing capacity — see the Borrowing Power Calculator. For straight loan repayment scenarios, the Mortgage Repayment Calculator.