Negative Gearing Explained - Essendon Finance

For decades, negative gearing has been a cornerstone of Australian property investment—allowing investors to claim tax deductions on losses from rental properties against their taxable income. But with rising interest rates, tighter lending rules, and political uncertainty, many are asking: Is negative gearing still worth it in today’s market?

At Essendon Finance , we’ve helped hundreds of Melbourne and national investors navigate this complex strategy—not as a tax loophole, but as a long-term wealth-building tool when used correctly. The truth? Negative gearing isn’t dead—but it’s no longer a “set-and-forget” tactic. Success now demands smarter financing, precise location selection, and integrated tax planning.

If you’re considering an investment property, start by understanding your true capacity with our Borrowing Power Calculator . Then explore high-growth corridors using our Melbourne Property Secrets guide. And if you’re ready to act, our Home Loans team structures deals that maximize deductions while protecting cash flow.

What Is Negative Gearing? A Simple Breakdown

Negative gearing occurs when the costs of owning an investment property (interest, maintenance, council rates, etc.) exceed the rental income it generates—creating a net loss.

Under Australian tax law, you can offset that loss against your other taxable income (e.g., salary), reducing your overall tax bill.

✅ Example:

Annual rental income: $26,000
Annual expenses (interest + costs): $38,000
Net loss: $12,000
If you earn $120,000/year (37% tax bracket), you save $4,440 in tax

This tax benefit helps cover the cash shortfall—making the investment sustainable until the property appreciates.

But here’s the catch: Negative gearing only works if capital growth eventually outweighs the ongoing losses.

The 2025 Reality: Why the Rules Have Changed

While negative gearing remains legal and widely used, three market shifts have reshaped its viability:

1. Higher Interest Rates

The average variable investment rate rose from 2.8% in 2021 to 6.2% in 2025. This dramatically increases interest expenses—turning mildly negative properties into deeply cash-flow-negative ones.

2. Tighter Serviceability Buffers

Lenders now stress-test loans at 7.5–8.0%, making it harder to qualify for multiple properties—especially if existing ones are negatively geared.

3. Political Risk

Though the current government supports negative gearing, future policy changes (e.g., limiting deductions to new builds only) remain possible.

At Essendon Finance , founder Harry Sekhon advises: “Negative gearing isn’t about avoiding tax—it’s about buying the right asset in the right location so growth compensates for short-term losses.”

When Negative Gearing Still Makes Sense (3 Scenarios)

✅ Scenario 1: High-Growth, Undersupplied Suburbs

In markets with strong population growth and low vacancy rates (e.g., Glenroy, Sunshine), capital growth can exceed 10% annually—quickly erasing years of negative cash flow.

💡 Pro Tip: Use our Stamp Duty Calculator to compare entry costs across suburbs—lower upfront costs = faster breakeven.

✅ Scenario 2: High-Income Earners (Top Tax Brackets)

If you earn $120,000+, the tax savings are substantial. A $15,000 loss saves you $5,550–$6,450 in tax—effectively subsidizing your investment.

✅ Scenario 3: Long-Term Hold (10+ Years)

Negative gearing is a marathon, not a sprint. Over a decade, even modest 6% annual growth turns a $600K property into $1.07M—while tax deductions soften the holding cost.

🔗 Learn how to structure long-term holds: Protect Your Investment Melbourne

The Hidden Risks Most Investors Ignore

❌ Risk #1: Cash Flow Crunch

If your property runs $800/month negative and you lose your job, you could face forced sale.

👉 Mitigation: Maintain 6 months of emergency cash + income protection via our My Protection Plan .

❌ Risk #2: Depreciation Changes

Since 2017, you can’t claim depreciation on second-hand plant & equipment (e.g., ovens, blinds) in existing properties—reducing deductions.

👉 Fix: Focus on new builds or major renovations, which still offer full depreciation schedules.

❌ Risk #3: Over-Leverage

Borrowing 90% LVR on multiple properties leaves no buffer for rate hikes or vacancies.

👉 Strategy: Keep total debt below 70% of portfolio value. Use our Mortgage Repayments Calculator to model worst-case scenarios.

How to Structure a Negatively Geared Property for Maximum Benefit

Step 1: Choose Interest-Only Loans

Principal-and-interest loans reduce deductible interest over time. Interest-only (typically 5–10 years) maximizes upfront deductions.

We secure these through specialist lenders via our Best Rates Australia network.

Step 2: Separate Loan Accounts

Never mix owner-occupied and investment debt. Keep each property on its own loan—this simplifies tax reporting and protects deductions.

Step 3: Avoid Offset Accounts on Investment Loans

While tempting, offset accounts reduce interest paid—and only paid interest is tax-deductible. Keep investment loans “clean.”

Step 4: Claim All Legitimate Expenses

Property management fees
Repairs (not improvements)
Council rates & insurance
Travel to inspect (if pre-2017 purchase)
Borrowing costs (e.g., loan establishment fees over 5 years)

We partner with accountants to ensure full compliance.

Positive vs. Negative Gearing: Which Is Better in 2025?


Cash Flow	Negative (you pay in)	Positive (you receive income)
Tax Benefit	High (offsets salary)	Low (adds to taxable income)
Best For	High-income earners, long-term holds	Retirees, low-income investors
Risk Level	Higher (relies on growth)	Lower (self-sustaining)
2025 Viability	Strong in growth corridors	Strong in regional hubs (7%+ yields)

💡 Hybrid Strategy: Buy a dual-income property (e.g., duplex) in a growth suburb—negative on paper due to high deductions, but cash flow neutral or positive in reality.

The Role of Smart Financing in Making Negative Gearing Work

Having the right loan structure is non-negotiable. At Essendon Finance , we optimize deals for tax and cash flow:

🔹 Refinance to Lower Rates

If you’re paying >6.0%, Refinance Melbourne could save $350+/month—reducing your net loss.

🔹 Use Bridging Finance for Off-Market Buys

Secure high-growth properties before they hit the market with our Bridging Loans —approval in 3–5 days.

🔹 Consolidate Non-Deductible Debt

Move credit card debt into your owner-occupied loan (not investment!) via Debt Consolidation Home Loans —freeing cash flow for investment shortfalls.

Real Client Story: How Mark Turned $18K in Annual Losses into $420K Equity

Mark, 42, earned $145,000 as an engineer. In 2021, he bought a unit in Coburg for $580K.

Annual loss: $18,200
Annual tax savings: $6,734
Net cash outflow: $11,466/year

By 2025, the property was worth $1M. His total out-of-pocket cost over 4 years: $45,864. His equity gain: $420,000.

“Negative gearing felt painful at first. But Essendon Finance showed me it was just the cost of buying a $1M asset with someone else’s money.” — Mark, Investor

We helped him structure an interest-only loan, claim full depreciation, and add landlord insurance via our Insurance service .

What If Negative Gearing Is Restricted in the Future?

While no changes are imminent, smart investors plan for policy risk:

✅ Focus on New Builds: Even if deductions are limited to new properties (as proposed in 2016), your asset remains eligible.
✅ Diversify Holdings: Include some positively geared regional assets to balance risk.
✅ Hold in Trusts: Discretionary trusts offer flexibility if tax laws shift.

Our Conveyancing service ensures titles align with future-proof structures.

Common Myths About Negative Gearing—Debunked

❌ Myth: “It’s Only for the Rich”

Truth: Anyone with taxable income can benefit—even nurses, teachers, and tradies earning $90K+.

❌ Myth: “You Lose Money Every Year”

Truth: You lose cash flow, but gain equity. Over time, growth dwarfs short-term losses.

❌ Myth: “It’s Going to Be Abolished”

Truth: Both major parties now support it. Even Labor’s 2019 proposal only limited it to new builds—not eliminated it.

For deeper insights, read: Property Tax Loopholes Melbourne

Final Checklist: Is Negative Gearing Right for You?

✅ Do you earn $80,000+ (so deductions are valuable)?
✅ Can you afford $500–$1,200/month cash shortfall for 3–5 years?
✅ Are you buying in a high-growth, low-supply suburb?
✅ Do you have income protection if you can’t work?
✅ Are you planning to hold for 10+ years?

If yes, negative gearing could be your path to generational wealth.

How Essendon Finance Makes It Work for You

We don’t just explain negative gearing—we execute it strategically:

Portfolio Audit: Review your income, tax position, and risk tolerance
Suburb Selection: Target areas with 8%+ projected growth
Loan Structuring: Interest-only, separate accounts, no offsets
Tax Optimization: Maximize deductions legally
Protection Layer: Insurance + emergency planning

This end-to-end approach is why clients trust us as their Mortgage & Finance Experts.

Ready to Build Wealth Through Smart Negative Gearing?

Don’t gamble with guesswork. Use 2025’s market dynamics to your advantage—with expert guidance, lender access, and a client-first approach.

📞 Call us: 0450 090 001
📧 Email: info@essendonfinance.au
💬 WhatsApp: +61 450 090 001
📅 Book a Free Consultation: Essendon Finance Appointments

Negative Gearing Explained: Is It Still Worth It in Today’s Market?