With the Reserve Bank of Australia holding the cash rate at 4.35% through its September 2024 meeting and a federal election due by May 2025, the tax treatment of property investment losses is back under the political microscope. Thirteen consecutive rate increases between May 2022 and November 2023 have pushed holding costs for leveraged investors to levels last seen in 2011, while a chronic undersupply of rental stock keeps gross yields elevated. Against this backdrop, negative gearing—claiming a rental loss as a deduction against other income—remains a defining feature of the nation’s tax and housing landscape. According to the latest ATO Taxation Statistics (2021–22, published 14 June 2024), 2.24 million individuals reported rental income, with 1.11 million claiming a combined net rental loss of $9.9 billion. On 15 October 2024, Treasurer Jim Chalmers told the Australian Financial Review that the government will not alter negative gearing settings in the current term, providing near-term certainty for investors. Yet the Greens, some crossbench MPs and the federal opposition have signalled potential caps, grandfathering or a move to restrict deductions to new-build properties. For any investor deciding whether to hold, acquire or refinance, the arithmetic of negative gearing—how the tax benefit interacts with the 2024–25 personal tax scales, APRA’s serviceability buffer and debt‑to‑income caps—has never been more material. This article steps through the tax mechanics, the distribution of gains revealed in ATO and Treasury data, and the lending policies that shape how big‑four and non‑bank lenders treat rental losses in borrowing assessments.
How Negative Gearing Works Under Australia’s 2024–25 Tax System
The basic deduction mechanism
Negative gearing occurs when the total deductible expenses of an income‑producing investment property exceed the gross rental income in a given financial year, creating a net rental loss. That loss can be offset against other assessable income—most commonly salary and wages—reducing the investor’s taxable income and the corresponding tax liability. The value of the deduction equals the loss multiplied by the individual’s marginal tax rate (including the 2% Medicare levy where applicable). The 1 July 2024 Stage 3 tax cuts reshaped the rate scale, producing the following brackets for the 2024–25 income year:
| Taxable income | Marginal rate | Rate incl. 2% Medicare levy |
|---|---|---|
| $0 – $18,200 | 0% | 0% |
| $18,201 – $45,000 | 16% | 18% |
| $45,001 – $135,000 | 30% | 32% |
| $135,001 – $190,000 | 37% | 39% |
| $190,001+ | 45% | 47% |
A dollar of allowable rental deduction therefore returns an after‑tax saving of up to 47 cents for a top‑bracket taxpayer, while the saving falls to 32 cents for a middle‑income earner in the $45,001–$135,000 band. Allowable expenses include loan interest, council rates, water charges, insurance, property management fees, repairs and maintenance, and depreciation.
The role of depreciation
Depreciation—both plant and equipment (Division 40) and capital works (Division 43)—often converts a small cash‑flow loss into a much larger tax loss without affecting the investor’s bank balance. For residential investment properties built after 16 September 1987, the building’s original construction cost can be written off at 2.5% per annum for 40 years. New or substantially renovated properties can also claim diminishing‑value deductions on fixtures and fittings. Since 1 July 2017, however, second‑hand plant and equipment assets in established residential properties are no longer depreciable; the capital works deduction, though, continues to apply. This legislative change means depreciation’s firepower is concentrated in newer dwellings and off‑the‑plan purchases, a point that has informed bank policy on the type of stock they prefer to finance at higher LVRs.
Calculating the Tax Benefit: A Real‑World Example
Investor profile
Consider a wage‑earner with a taxable salary of $140,000 (before any rental income or loss) and a residential investment property bought in 2022 for $800,000, financed with a $600,000 interest‑only loan at a variable rate of 5.19% p.a. The property generates gross rent of $32,000 per annum. Annual cash outflows are:
| Expense item | Annual cost |
|---|---|
| Loan interest (5.19%) | $31,140 |
| Council rates | $2,200 |
| Water | $800 |
| Insurance | $1,500 |
| Property management (7.5%) | $2,400 |
| Repairs & maintenance | $1,500 |
| Total cash expenses | $39,540 |
Cash‑flow result: $32,000 – $39,540 = a net cash loss of $7,540.
In addition, a quantity surveyor’s schedule confirms $5,000 in capital works (Division 43) and $3,000 in plant and equipment depreciation (Division 40) for a total annual depreciation claim of $8,000.
For tax purposes, total deductions are $39,540 + $8,000 = $47,540, producing a net rental loss of $47,540 – $32,000 = $15,540.
Tax saving and after‑tax position
On a salary of $140,000, the investor’s tax and Medicare levy in 2024–25 would be:
- Tax: ($26,800 × 18%) + ($90,000 × 32%) + ($5,000 × 39%) = $35,574
- Medicare levy (2%): $2,800
- Total: $38,374
After deducting the $15,540 rental loss, taxable income falls to $124,460. Tax plus levy become:
- Tax: ($26,800 × 18%) + ($79,460 × 32%) = $30,645