Investor is deciding whether to buy an investment property that will be negatively geared. They want to know the real out-of-pocket weekly cost after the tax benefit before they commit to the purchase.
Negative Gearing Calculator
Tax
Interest portion of your mortgage only
Rates, insurance, management, maintenance
From quantity surveyor's report
A property is negatively geared when rental income is less than deductible expenses (interest, rates, insurance, management, depreciation). The shortfall reduces your taxable income, saving you tax at your marginal rate.
Example: $10,000 shortfall at 37% marginal rate = $3,700 tax saving per year. Your actual out-of-pocket is $6,300.
Important: The strategy only profits overall if capital growth exceeds the ongoing cash shortfall. It is not a guaranteed strategy.
Example: $10,000 shortfall at 37% marginal rate = $3,700 tax saving per year. Your actual out-of-pocket is $6,300.
Important: The strategy only profits overall if capital growth exceeds the ongoing cash shortfall. It is not a guaranteed strategy.
Reference: ATO — Negative Gearing
Results are estimates for planning purposes. Verify with current standards and a qualified professional.
1 What this calculator does
Calculates rental shortfall, annual tax saving from negative gearing, and true out-of-pocket net cost after tax benefit. Supports Australian marginal tax rates. Shows whether the property is positively or negatively geared and quantifies the tax-effective holding cost.
2 Formula & professional reasoning
Rental shortfall = Total deductions - Rental income
Total deductions = Mortgage interest + Other costs + Depreciation
Tax saving = Rental shortfall x Marginal tax rate
Net out-of-pocket = Rental shortfall - Tax saving
Positively geared: Rental income > Total deductions (taxable surplus)
Negative gearing occurs when allowable deductions on an investment property exceed the rental income. The shortfall is deducted from the investor's other income (salary), reducing taxable income and generating a tax refund at the investor's marginal rate. The higher the marginal tax rate, the larger the tax benefit. At a 37% marginal rate, the government effectively covers 37 cents of every dollar of shortfall -- reducing the out-of-pocket cost significantly.
3 Worked examples
⚠️ Illustrative example only — not clinical or professional instruction.
Basic
Standard negatively geared residential property
Given: Annual rental income: $22,000 | Mortgage interest: $28,000 | Other costs: $8,000 | Depreciation: $5,000 | Marginal tax rate: 37%
Working:
Total deductions: $28,000 + $8,000 + $5,000 = $41,000 | Shortfall: $41,000 - $22,000 = $19,000 | Tax saving: $19,000 x 0.37 = $7,030 | Net out-of-pocket: $19,000 - $7,030Answer: Annual shortfall: $19,000 | Tax saving: $7,030 | Net out-of-pocket: $11,970/yr ($230/week)
💡 The investor pays $230/week out of pocket for a property worth $650,000 -- equivalent to buying $11,970/yr of property equity and capital growth exposure. Whether this is worthwhile depends entirely on the growth outlook.
Standard
Top marginal rate -- high income earner
Given: Rental income: $26,000 | Interest: $35,000 | Costs: $9,000 | Depreciation: $7,000 | Tax rate: 47%
Working:
Shortfall: $51,000 - $26,000 = $25,000 | Tax saving: $25,000 x 0.47 = $11,750 | Net: $13,250/yrAnswer: Shortfall: $25,000 | Tax saving: $11,750 (47%) | Net cost: $13,250/yr ($255/week)
💡 At 47% the tax saving is almost half the shortfall. High-income earners receive the largest benefit from negative gearing, which is why it disproportionately benefits higher-income investors.
Advanced
Property turns positively geared after rent increase
Given: Year 1: Rental income $22,000 | Year 5: income rises to $28,000 | Deductions remain $38,000 | Tax rate: 37%
Working:
Year 1: shortfall $16,000, tax saving $5,920 | Year 5: shortfall $10,000, tax saving $3,700 | If income reaches $38,000: positively geared, surplus $0Answer: As rent increases, the shortfall narrows and eventually the property turns positively geared -- the rent increase then becomes taxable
💡 Positively geared properties generate taxable income. The tax benefit of negative gearing is temporary -- as rents rise the property often flips to positive gearing and becomes a tax liability.
4 Sanity check
Australian marginal tax rates 2024-25
0-18,200: 0% | 18,201-45,000: 19% | 45,001-120,000: 32.5% | 120,001-180,000: 37% | 180,001+: 45% (plus Medicare levy 2%)
Always include the 2% Medicare levy when calculating the effective marginal rate.
Deductible items for investment property
Mortgage interest | Council rates | Insurance | Property management fees | Repairs and maintenance | Depreciation (division 40 and 43) | Advertising for tenants | Accounting fees
Capital improvements are not immediately deductible -- they are added to the cost base for CGT.
Depreciation is a non-cash deduction
Depreciation reduces taxable income without a cash outflow -- it is the most powerful deduction for new properties
New properties typically depreciate $5,000-$15,000/yr in the first 5 years.
Tax saving is received as a reduced withholding or refund
PAYG withholding variation allows the tax benefit to come through in your weekly payslip
Complete a PAYG withholding variation form with the ATO to receive the benefit weekly rather than at tax time.
5 Common errors
| Error | Cause | Consequence | Fix |
|---|---|---|---|
| Treating the tax saving as a guaranteed return | Assuming the marginal tax rate remains constant | Tax reform, income reduction or change in tax residency can dramatically reduce the benefit | The tax saving depends on your marginal rate -- which can change. A $20,000 shortfall that saves $7,400 at 37% saves only $3,800 if income drops to the 19% bracket. |
| Forgetting depreciation requires a quantity surveyor report | Guessing depreciation without a formal report | Depreciation claim underestimated or overclaimed -- ATO compliance risk | For any investment property built after 1985, engage a qualified quantity surveyor to prepare a Tax Depreciation Schedule. The cost ($400-$700) is itself tax deductible and typically recovers its cost in the first year's depreciation benefit. |
| Not including all ownership costs in the deductions | Using only interest and management fees | Tax benefit understated -- investor thinks cost is higher than it actually is | Include all deductible costs: interest, rates, insurance, management fees, maintenance, advertising, accounting fees and depreciation. Check the ATO rental property guide for the full list. |
| Assuming negative gearing automatically makes the property a good investment | Focusing on the tax benefit rather than total return | Holding a poor-performing property because the tax benefit makes the holding cost bearable | The tax benefit reduces the holding cost -- it does not create wealth. Wealth comes from capital growth and rental income. A property with a $10,000 tax benefit but zero capital growth is still a bad investment. |
6 Reference & regulatory links
7 Professional workflow
Common tools used alongside this one:
Landlord Cash Flow Calculator
Landlord Cash Flow shows the monthly out-of-pocket cost; Negative Gearing shows the annual tax benefit that partially offsets it
→
Rental Yield Calculator
Rental Yield establishes the gross income; Negative Gearing shows the tax benefit of the shortfall
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Capital Gains Tax Calculator
When selling a negatively geared property, Capital Gains Tax Calculator shows the tax on the capital gain that has offset the prior year negative gearing benefits
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