Negative Gearing: How it Works and Why it Matters
Negative gearing occurs when your investment property costs more in interest and expenses than it earns in rent. According to the Australian Taxation Office (ATO), you can offset these losses against your other income, reducing your taxable income.
For example, if your rental income is $20,000, but your mortgage interest and expenses are $30,000, you have a loss of $10,000. This amount can be deducted from your salary income, potentially lowering your overall tax bill.
While negative gearing remains popular in 2025, there’s ongoing discussion about potentially restricting its benefits to new builds only. Staying updated on government policy announcements is essential.
Negative Gearing: Still a Smart Move?
Negative gearing remains beneficial for many investors, especially those in higher tax brackets who see significant reductions in taxable income. However, it’s crucial that the property itself has strong growth potential—tax benefits alone won’t guarantee profitability.
Capital Gains Tax (CGT): What You Need to Know
Capital Gains Tax applies when you sell your investment property at a profit. If you hold the property for more than 12 months, you’re eligible for a 50% discount on your CGT liability (ATO CGT Discount Rules).
For instance, if your property gains $200,000 over the purchase price, you’ll only pay tax on $100,000 of that gain if held for more than 12 months. Investors often plan their holding periods around this rule to maximise after-tax returns.
Always keep detailed records of your purchase price, transaction costs, and improvements made to the property—these can reduce your capital gains liability significantly (ATO Record Keeping).
Depreciation: The Hidden Tax Advantage
Property depreciation allows you to claim deductions on the wear and tear of your property and its fixtures. Items like appliances, air conditioning systems, carpets, and structural improvements have depreciation value.
Engaging a specialist to create a depreciation schedule can maximise your deductions significantly. Depreciation claims can add thousands to your yearly tax deductions without any cash leaving your pocket.
Future Policy Changes: Stay Informed
In early 2025, there’s ongoing debate around potential reforms to investor-friendly policies like negative gearing and CGT discounts. Although the current government hasn’t announced specific plans yet, it’s wise to keep an eye on this space. Any changes could significantly impact your investment strategies
Be ready to adjust your approach if these tax concessions become restricted—possibly to new properties or first-time investors only. The best-prepared investors stay ahead of policy trends by consulting regularly with mortgage brokers and tax specialists.
How Lagos Financial Can Help
Taxes are complex, but they don’t have to slow you down. At Lagos Financial, we specialise in guiding investors through smart property decisions. Whether you’re considering buying, refinancing, or restructuring your property investments, we can help.
Book a complimentary assessment to discuss your investment goals with our expert team.
Stay ahead of the curve and maximise your property investment returns by staying informed and proactive.
