Negative Gearing in Australia: Property vs. Shares Compared (2025)

Author: Tepuy Solutions | Date: October 24, 2025 | Category: Investment Taxation, Property Investing

Overview

Negative gearing is a well-known, and sometimes controversial, feature of the Australian investment landscape, particularly concerning property. But how does it actually work, and how do its tax implications compare when you weigh property against investing in shares? This article breaks down negative gearing for investment properties and contrasts it with the tax treatment of share investments in Australia, helping you understand the real impact on your cash flow and overall returns.

What is Negative Gearing?

An investment is negatively geared when the costs of owning it (like loan interest, council rates, maintenance) exceed the income it generates (like rent).

In Australia, if your investment property is negatively geared, you can typically deduct that net rental loss against your other assessable income (like your salary) in the same financial year. This reduces your overall taxable income, resulting in a lower tax bill or a larger tax refund.

Example:

• You earn a $100,000 salary.
• Your investment property generates $25,000 in rent but has $35,000 in deductible expenses (interest, rates, repairs, depreciation).
• Your net rental loss is $10,000.
• You can deduct this $10,000 loss from your salary.
• Your taxable income becomes $90,000 (instead of $100,000).
• If your marginal tax rate is 34.5% (including Medicare levy), this deduction saves you $3,450 in tax for the year.

The strategy relies on the expectation that the property's capital growth over time will outweigh the annual cash flow losses, providing a larger profit when sold (which is then taxed, potentially at a discounted CGT rate).

How Negative Gearing Applies Specifically to Property

• Deductible Expenses: For investment properties, a wide range of expenses are typically deductible against rental income:
  • Loan interest (often the largest expense)
  • Council and water rates
  • Land tax
  • Property management fees
  • Insurance
  • Repairs and maintenance (not capital improvements)
  • Depreciation on the building structure (capital works) and eligible assets (fittings, appliances)
• Loss Offset: The key benefit is offsetting the net rental loss against other income in the same year.
• Depreciation: Claiming depreciation reduces taxable income annually but also reduces the property's cost base, potentially increasing the Capital Gains Tax (CGT) payable when you eventually sell.

Your Property vs Shares Calculator models these factors, calculating the taxable income (or loss) each year by subtracting ownership costs, interest, and depreciation from rental income, then applying your marginal tax rate.

Negative Gearing and Shares: A Different Story

The term "negative gearing" is typically not applied to share investments in the same way, mainly because borrowing to invest in shares (margin lending) has different characteristics and tax rules regarding losses.

• Interest Deductibility: If you take out a loan specifically to buy income-producing shares (a margin loan), the interest on that loan is generally tax-deductible against the investment income (dividends).
• Losses: However, if your total investment expenses (like interest) exceed your total investment income (dividends) for the year, creating a net investment loss, **you generally cannot deduct that loss against your salary or other non-investment income.**
• Quarantining: Investment losses from financial assets like shares are typically "quarantined". This means the loss can usually only be used to offset other investment income (like dividends from other shares) or carried forward to offset future investment income or capital gains.
• Capital Losses: If you sell shares for less than their cost base, this creates a *capital loss*. Capital losses can only be offset against capital gains, not against regular income like salary or dividends. Unused capital losses can be carried forward indefinitely to offset future capital gains.

Key Difference: Property investment losses (from rent minus expenses) can directly reduce your tax on salary *now*. Share investment losses (from dividends minus interest) generally *cannot* – they mainly offset other investment income or are carried forward.

Comparing the Tax Impact

Why Does This Matter for Property vs. Shares?

Negative gearing provides a significant cash flow advantage to property investors in the early years compared to share investors using similar leverage. By reducing tax payable on their salary, property investors receive an immediate subsidy from the tax system that helps cover the property's running costs.

Share investors generally don't get this immediate offset against salary, meaning they need stronger investment income (dividends) or must fund any cash flow shortfall entirely out-of-pocket or by selling down assets (potentially triggering CGT).

However, negative gearing is not "free money." It relies on capital growth exceeding the accumulated losses over time. If property growth stalls, or interest rates rise significantly, a negatively geared property can become a significant financial drain, even with the tax benefits.

Run Your Numbers

The interplay between rental income, costs, interest, depreciation, tax rates, and capital growth is complex. The best way to understand the true impact of negative gearing versus investing in shares is to model your specific scenario.

Use the Tepuy Solutions Property vs Shares Calculator to compare side-by-side:

• Enter your expected loan amount, property costs, and rental yield.
• Input your marginal tax rate to see the negative gearing effect on annual cash flow.
• Compare this to investing the same upfront amount in shares, considering different return assumptions.
• See the projected net wealth outcome after tax and CGT over your chosen timeframe.

By simulating your own numbers, you can move beyond the headlines and make an informed decision based on data.