Folio 6 · The balance carried down
Negative gearing, as the ATO describes it
The ATO says a rental property is negatively geared when its deductible expenses are more than the income it earns. The result is a net rental loss. The ATO says the deductions can be claimed against rental and other income, such as salary, wages or business income, and if that other income isn’t enough to absorb the loss, the loss can be carried forward to the next income year.
General information, not tax or financial advice. This folio describes the ATO’s rules; it doesn’t say whether a loss is worth making. The ATO’s Rental properties guide 2026 is the place to check, and the rules change on 1 July 2027 (below).
- Folio
- 6 of 6
- Rules
- Australian Taxation Office (federal)
- Pages
- How to claim rental expenses; other tax considerations; tax reform 2026–27
- Checked against the sources on 8 October 2026
Two words, one test
Positively geared
Deductible expenses are less than the income from the property: you make a profit from renting it out.
Negatively geared
Deductible expenses are more than the income from the property, including the interest on money borrowed to buy it.
Where the loss goes
The ATO’s description, step by step:
- Rent less deductible expenses
Rental income for the year, less the deductible expenses, including interest on the borrowings.
- A net rental loss
When the expenses are larger, the tax result is a net rental loss.
- Against other income
The full amount of rental expenses may be claimed against rental and other income, such as salary, wages or business income, in that year’s return.
- Carried forward
Where the other income isn’t enough to absorb the loss, it can be carried forward to the next income year.
Tax taken from pay during the year
The ATO notes that where the rental expenses claimed would lead to a tax refund, an owner may lower their rate of withholding so it better matches their tax for the year, and can apply to the ATO for a PAYG withholding variation if they believe their circumstances warrant one.
A rental loss is not a capital loss
The two are kept in separate columns. A rental loss can offset other income, such as wages. A net capital loss, from selling at a loss, can only be deducted from capital gains, in that year or later, never from other assessable income. Folio 2 covers the sale.
When the deductions are limited
- Rent below the market rate to family or friends. Where the expenses exceed the rent, the ATO accepts limiting the deductions to the rent received, which leaves no net rental income or loss.
- A holiday home that is also rented. Ownership and use expenses, such as interest, rates, land tax and repairs, can’t be claimed unless the home is used, or held for use, mainly to produce rent.
- Days of private use. Interest can’t be claimed for any period the property is used privately, even a short one.
From 1 July 2027: new builds
The Government announced reforms to negative gearing and capital gains tax in the 2026–27 Federal Budget. The ATO says these measures are now law. The dates, as the ATO gives them:
- 7:30pm AEST, 12 May 2026
The announcement. Properties held at this moment are exempt from the negative gearing changes.
- The 2025–26 tax return
The changes don’t apply to it.
- 1 July 2027
Negative gearing for residential property investments is limited to new builds.
The ATO’s page gives the measure in those words and links to the amending Acts and the Budget papers for the detail. The capital gains side of the same reform is in folio 2.