Negative Gearing: What Sydney Investors Need to Know

What Is Negative Gearing?

Negative gearing occurs when your rental income is lower than the expenses of owning the investment property. This loss can be used to reduce your taxable income, lowering the amount of tax you pay.

It remains one of Australia’s most commonly used tax strategies — especially in Sydney, where property values and capital growth potential are high.

How Negative Gearing Works — Example

• Rental income: $20,000

• Expenses (mostly interest + running costs): $30,000

• Net loss: –$10,000

  
  

This $10,000 becomes a tax-deductible amount, reducing your total taxable income for the year.

You don’t get $10,000 back — you pay less tax because your taxable income is reduced.

Why Negative Gearing Is So Popular in Sydney

Sydney remains the most active negative gearing market in Australia due to:

• Strong long-term capital growth

• High property prices (creating higher deductible interest)

• High-income earners receive greater tax savings

• Consistent rental demand

• Large investor population

  
  

NSW accounts for nearly half of all negative gearing–related searches in Australia, showing high investor interest.

What Sydney Investors Can Claim Under Negative Gearing

✔ Loan Interest

This is the biggest deduction for most investors.

✔ Depreciation

• Building depreciation (post-1987 buildings)

• Assets and fixtures (ovens, carpets, blinds, etc.)

  
  

✔ Property Running Costs

• Council rates

• Water rates

• Repairs

• Maintenance

• Strata fees

• Insurance

• Property management fees

• Advertising for tenants

  
  

For a full list of deductible expenses, you can review the ATO’s official rental property guide — the exact resource accountants rely on:

Benefits of Negative Gearing

✔ Tax Minimisation

Offset losses against other taxable income.

✔ Long-Term Capital Growth

Sydney has a strong historic growth trend.

✔ Portfolio Expansion

A properly structured negative gearing strategy may support future borrowing capacity.

✔ Wealth Building Over Time

Even if short-term cash flow is negative, long-term equity can be significant.

Risks Sydney Investors Should Consider

Cashflow Pressure

Expenses must be covered even during tenant vacancies.

Interest Rate Movements

Rate rises can widen the negative cash gap.

Unexpected Repairs

Costs can increase unexpectedly.

Capital Growth Variability

Not all suburbs perform equally — strategy matters.

This is why a professional tax and investment structure is essential.

Is Negative Gearing Still Allowed

Yes. Negative gearing remains fully legal, ATO-recognised, and widely used by Australian property investors.No legislative changes have removed or limited the strategy.

Who Gains the Most From Negative Gearing?

• High-income earners

• Sydney property investors

• Long-term holders (7+ years)

• Investors seeking tax optimisation

• Investors using depreciation effectively

• People expanding property portfolios

  
  

If this describes you, negative gearing may be a beneficial strategy.

If you're considering using a Self-Managed Super Fund (SMSF) to purchase property, a proper structure is essential. We cover this in our full SMSF property strategy guide

Why Work With Adenix Accounting

Negative gearing is powerful — but only when structured correctly. Adenix Accounting helps Sydney investors maximise deductions, strengthen cashflow, and build long-term investment strategies tailored to their goals.

Book a free consultation and get expert guidance for your investment property.

FAQ

What is negative gearing?

Negative gearing is when rental expenses exceed rental income, creating a tax-deductible loss.

Is negative gearing good for Sydney investors?

Yes. Sydney’s high growth potential makes the tax strategy effective for long-term investors.

What can you claim under negative gearing?

Loan interest, strata fees, water/council rates, depreciation, repairs, management fees, and insurance.

Does negative gearing reduce tax?

Yes. The net loss reduces your taxable income.

Can negative gearing become positive?

Yes — as rent increases and your loan reduces, the property can become cashflow positive.