What is positive gearing?

Positive gearing means the rental income exceeds all property expenses. The net rental profit is added to your taxable income. Positive gearing improves your cash flow week-to-week but means you pay more tax. Properties in regional areas, outer suburbs, and high-yield locations are more likely to be positively geared.

Does negative gearing affect borrowing power?

Yes. Lenders add the gross rental income (shaded at 70–80%) to your income and the loan repayment to your expenses. A negatively geared property may actually reduce your borrowing capacity because the expense (P&I repayment at stress-tested rate) exceeds the shaded rental income. However, the tax deduction from negative gearing is sometimes factored in depending on the lender.

Positive vs Negative Gearing in Australia: Which Strategy

Q: What is negative gearing in Australia?

Negative gearing means your rental property's expenses (interest, rates, insurance, depreciation, management fees) exceed the rental income. The net loss is deducted from your other income (typically salary), reducing your tax payable. The benefit depends on your marginal tax rate — the higher your rate, the more tax you save.

Q: Is negative gearing at risk from policy changes?

There has been ongoing political debate about restricting negative gearing. Previous Labor proposals would have limited negative gearing to new properties only. As of 2026, negative gearing on all investment properties is still available. Policy risk is real but hard to predict — investors should not rely solely on the negative gearing benefit as their primary investment rationale.

Q: Which suburbs in South West Sydney are positively geared?

In South West Sydney, areas like Campbelltown, Macquarie Fields, Ingleburn, and parts of Liverpool can offer rental yields above 5–6% on properties under $700,000. These are more likely to be positively geared or neutrally geared compared to inner-city properties yielding 2–3%. A broker can model the specific numbers for any suburb you're considering.

The Definitions

Negatively geared: Annual rental income < total deductible expenses. Net loss deducted from other income, reducing your tax bill. You're subsidising the property — hoping capital growth compensates over time.

Positively geared: Annual rental income > total deductible expenses. Net profit added to your taxable income. You receive cash flow each week — but pay more tax.

Neutrally geared: Rental income ≈ total expenses. No net loss or profit for tax purposes.

Negative Gearing: Worked Example

Example — Negatively geared property in Parramatta:
Purchase price: $800,000 | Loan: $640,000 at 6.4% (IO) | Rent: $650/wk = $33,800/year

Annual expenses:
Interest: $40,960
Rates + insurance + management: $6,500
Depreciation: $4,200
Total expenses: $51,660

Net rental loss: $17,860
Tax saving (at 37% marginal rate): $6,608
Out-of-pocket cost after tax: $11,252/year ($216/week)

This investor is paying $216/week to hold the property, betting on capital growth of $50,000–$80,000/year.

Positive Gearing: Worked Example

Example — Positively geared property in Campbelltown:
Purchase price: $550,000 | Loan: $440,000 at 6.4% (IO) | Rent: $550/wk = $28,600/year

Annual expenses:
Interest: $28,160
Rates + insurance + management: $5,000
Depreciation: $2,500
Total expenses: $35,660

Net rental loss: $7,060 (still slightly negative after depreciation)

Note: Without depreciation, this property would be cash-flow positive. Gross cash flow: +$440/year before depreciation.

SW Sydney: Positive vs Negative Gearing by Area

Suburb	Typical Yield	Likely Gearing	Capital Growth Potential
Campbelltown	5.5–7%	Neutral to positive	Medium
Liverpool	4.5–5.5%	Neutral to negative	Medium-high
Parramatta	3.5–4.5%	Negative	High
Oran Park / Leppington	4–5%	Neutral to negative	Medium (new estates)
Lakemba / Bankstown	4.5–5.5%	Neutral	Medium-high
Macquarie Fields / Ingleburn	5.5–7%	Positive to neutral	Low-medium

How Each Affects Borrowing Power

Factor	Negative Gearing	Positive Gearing
Rental income counted	Yes (shaded 70–80%)	Yes (shaded 70–80%)
Loan repayment as expense	Yes (reduces capacity)	Yes (reduces capacity)
Net effect on borrowing capacity	Usually reduces	Neutral to small increase (if yield high)
Tax deduction factored in?	Some lenders; not all	N/A (taxable income addition)

Policy Risk

Negative gearing has been politically contentious in Australia. Labor has previously proposed restricting negative gearing to new properties only. As of 2026, there are no restrictions — negative gearing applies to all investment properties. However, investors should assess their strategy on fundamentals (yield + capital growth) rather than relying purely on the tax deduction.

Long-Term Wealth: Which Strategy Wins?

Neither strategy is universally better — it depends on your situation:

Investor Type	Better Strategy	Why
High income earner (37%+ tax rate)	Negative gearing	Tax deduction worth more; can absorb weekly shortfall
Lower income / early career	Positive gearing	Can't afford weekly subsidy; needs cash flow
Already have multiple negatively geared properties	Add positive gearing	Balance cash flow; reduce total subsidy burden
Approaching retirement (reduced income)	Positive gearing / neutral	Lower income means less benefit from deductions
Building a portfolio quickly	Depends on equity	Positive cash flow preserves borrowing capacity for next purchase

Frequently Asked Questions

Negative gearing means your rental property's expenses exceed the rental income. The net loss is deducted from your other income, reducing your tax payable. The benefit depends on your marginal tax rate — the higher your rate, the more tax you save.

Yes. Lenders add shaded rental income (70–80%) and the loan repayment as an expense. A negatively geared property may reduce your borrowing capacity because the stress-tested repayment exceeds the shaded rental income in many cases.

As of 2026, negative gearing on all investment properties is still available. There has been political debate about restricting it to new properties only, but no changes have been enacted. Policy risk is real but hard to predict.

Areas like Campbelltown, Macquarie Fields, and Ingleburn offer yields above 5–6% on properties under $700,000. These are more likely to be positively geared or neutrally geared. A broker can model specific numbers for any suburb you're considering.

Positive gearing means the rental income exceeds all property expenses. The net rental profit is added to your taxable income. Positive gearing improves cash flow week-to-week but means you pay more tax. Properties in outer suburbs and regional areas are more likely to be positively geared.

Positive vs Negative Gearing in Australia: Which Strategy Is Better?

The Definitions

Negative Gearing: Worked Example

Positive Gearing: Worked Example

SW Sydney: Positive vs Negative Gearing by Area

How Each Affects Borrowing Power

Policy Risk

Long-Term Wealth: Which Strategy Wins?

Frequently Asked Questions

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