Positive and negative gearing are the two ways a borrowed-against property can behave — income now or growth later — and choosing between them shapes your whole investment strategy. This guide explains both, the tax difference, the middle ground, and which suits different investors.
Gearing simply means borrowing to invest. A geared property is one bought largely with a loan, and whether it is "positive" or "negative" depends on one thing: whether the rent covers the costs. Positive gearing means the property makes a profit each year; negative gearing means it makes a loss. Both are legitimate strategies, and neither is automatically better — they suit different investors and different goals.
Model either scenario with our rental property calculator.
A positively geared property earns more in rent than it costs to hold, so it puts money in your pocket each year. That surplus is taxable income — you pay tax on the profit — but the property funds itself and then some. Positive gearing suits investors who want income now, who cannot comfortably fund a weekly shortfall, or who want to hold multiple properties without straining their salary. These properties are more common where yields are higher: units, regional areas, and cheaper markets.
A negatively geared property costs more to hold than it earns, producing an annual loss. That loss is deductible against your other income, reducing your tax bill — but you are still out of pocket in real cash each week. The strategy relies on capital growth eventually outweighing the accumulated losses. It suits higher-income investors who can fund the shortfall, benefit most from the tax deduction, and are betting on growth. Our negative gearing guide covers the mechanics.
The two strategies pull in opposite directions on tax. Positive gearing adds to your taxable income, so you pay more tax but keep a cash profit. Negative gearing reduces your taxable income, so you pay less tax but carry a cash loss. The higher your marginal rate, the more valuable the negative gearing deduction becomes — which is why the strategy appeals disproportionately to high earners. Estimate your rate with our income tax calculator.
The right choice depends on your income, your goals and your risk appetite. If you need the investment to pay its own way, or you are on a lower tax rate, positive gearing makes sense. If you have surplus income to fund a shortfall, a high marginal rate, and conviction about capital growth, negative gearing can build wealth faster — with more risk. Many investors hold a mix, using positive properties to offset the cash drain of negative ones.
There is also neutral or "cash-flow neutral" gearing, where rent roughly matches costs and the property neither helps nor hurts your weekly budget. These properties let you benefit from potential growth without funding a weekly loss, and without the tax on a profit. They are harder to find but can be a comfortable middle path for investors who want growth exposure without cash-flow stress.
Positive gearing prioritises income and sustainability; negative gearing prioritises growth and tax efficiency, at the cost of weekly cash and higher risk. Neither is a strategy in itself — they are outcomes of the property, the rent, and how much you borrow. Decide what you actually want the investment to do for you, run the numbers both ways, and get advice from a registered tax agent before committing. The label matters far less than whether the overall investment stacks up.
What is the difference between positive and negative gearing?
Positive gearing means the rent more than covers the costs, so the property makes a taxable profit each year. Negative gearing means costs exceed rent, producing a loss that reduces your other taxable income. Both are legitimate strategies suiting different investors.
Is positive or negative gearing better?
Neither is automatically better. Positive gearing gives income now and is easier to sustain, suiting lower incomes. Negative gearing bets on capital growth and offers a bigger tax deduction, suiting higher earners who can fund the weekly shortfall and accept more risk.
How does gearing affect my tax?
Positive gearing adds to your taxable income, so you pay more tax but keep a cash profit. Negative gearing reduces your taxable income, so you pay less tax but carry a cash loss. The higher your marginal rate, the more valuable the negative gearing deduction.
What is cash-flow neutral gearing?
A property where rent roughly matches costs, so it neither helps nor hurts your weekly budget. It gives exposure to potential capital growth without funding a weekly loss and without tax on a profit — a comfortable middle path, though harder to find.
Which gearing strategy should I choose?
It depends on your income, goals and risk appetite. If you need the property to pay its own way or are on a lower tax rate, positive gearing suits you. If you have surplus income, a high marginal rate and conviction about growth, negative gearing can build wealth faster with more risk.