Most Australians have heard of negative gearing. At Ascent Wealth Solutions, we find that fewer people stop to ask which type of gearing aligns with their situation, cashflow capacity and timeframe. 

Three Gearing Outcomes

• Positive gearing: investment income exceeds costs. Surplus cashflow is generally taxed at your marginal rate.
• Neutral gearing: income roughly matches costs. Return may come mainly from capital growth, depending on the investment outcome.
• Negative gearing: costs exceed income. The shortfall may be deductible, subject to the tax rules that apply, and the strategy relies on future income and capital growth assumptions over time.

Illustrative Example Only, Not a Forecast 

Assume a $200,000 investment loan at 6 per cent p.a., which results in $12,000 of interest a year.

• Positive gearing illustration: 7 per cent income yield equals $14,000 income, leaving a $2,000 surplus before tax.
• Neutral gearing illustration: 6 per cent income yield equals $12,000 income, broadly matching the interest cost.
• Negative gearing illustration: 3 per cent income yield equals $6,000 income, leaving a $6,000 shortfall that may be deductible, subject to the relevant tax rules.

Figures are for education only and do not represent past or expected performance.

Which Style May Be More Appropriate for Different Investors?

•  Positive gearing may be more appropriate for individuals who prioritise income or are approaching retirement. In some circumstances, gearing can form part of a broader retirement planning strategy, depending on an investor’s cashflow capacity, investment timeframe and tolerance for risk.
• Neutral gearing may be more appropriate for individuals who want investment exposure through borrowing but need to limit ongoing cashflow strain.
• Negative gearing may be more appropriate for individuals with higher taxable income, strong surplus cashflow, a long timeframe and the capacity to manage shortfalls and investment volatility.

A Closer Look at Negative Gearing as an Investment Strategy

Negative gearing has been a common strategy for years, partly because of the short-term benefit of an income tax deduction on the annual shortfall. That may be a relevant benefit, but it is not the only consideration.

By definition, negative gearing means paying more each year than the investment brings in. Over a 7 to 10 year holding period, those cumulative costs can be significant. A well-considered plan includes modelling whether the total after-tax cost of the strategy is consistent with the investor’s objectives and assumptions about future returns.

The tax deduction is only one component of the return, not the whole picture. A sound approach to financial planning considers the total after-tax outcome across the full holding period, including interest costs, holding costs, expected income assumptions, potential capital growth and CGT on exit. 

What the 2026 budget changes actually mean

From 1 July 2027, negative gearing on residential property is limited to new builds. Losses on established residential properties acquired after 7:30pm AEST on 12 May 2026 are quarantined. Properties acquired before that time are grandfathered.

Shares, ETFs, managed funds, commercial property, and superannuation funds continue to be negatively gearable under current rules.

A better question to ask

Instead of asking, “Should I negatively gear?”, it may be more useful to ask:

“Given my income, timeframe, risk tolerance and exit plan, are the projected long-term outcomes consistent with the total after-tax cost and risk of this strategy?”

That question puts the numbers in a more balanced order.

Turning strategy into practical planning

For some investors, gearing may form part of an overall financial strategy where cashflow capacity, risk tolerance and investment objectives have been carefully considered.

If you would like to work through what the numbers look like for your situation, you are welcome to book a complimentary 20-minute call.

Frequently Asked Questions

What is the difference between positive, neutral and negative gearing?

Positive gearing occurs when investment income exceeds costs. Neutral gearing is where investment income broadly matches costs. Negative gearing occurs when investment costs exceed investment income, creating a cashflow shortfall that may be deductible, subject to current tax rules.

Is negative gearing only available for property?

No. Under the current rules outlined in this article, shares, ETFs, managed funds, commercial property and superannuation funds may still be negatively geared. Residential property rules differ following the 2026 Budget Changes

How do I know which gearing strategy is right for me?

The most appropriate strategy depends on factors such as your income, cashflow capacity, investment timeframe, risk tolerance and financial goals. Seeking personalised financial advice can help determine which approach best suits your circumstances.

General Advice Warning

General information only. This article does not consider your personal circumstances. Please seek personal financial advice before acting.

This article is not tax or credit advice. Tax outcomes depend on your individual circumstances and current law. Interest rates referenced are indicative only, at the time of writing, and are not offers of credit. Please seek advice from a registered tax agent for tax matters and a licensed credit provider for credit matters.

Disclosures: Stephanie Yeung is an Authorised Representative of Personal Financial Services Limited ABN 26 098 725 145, AFSL 234459. Article prepared July 2026.

References

• Australian Taxation Office, Tax reform – Boosting home ownership – Reforming negative gearing and capital gains tax, last updated 29 June 2026.
• Australian Government, Budget 2026–27, Negative Gearing and Capital Gains Tax Reform tax explainer.