If Negative Gearing Is Removed in Australia, What Does This Mean for Your Investment Property?

Negative gearing has long been a hot topic in Australia’s property market. Politicians, economists, and investors continue to debate whether it should stay or go. But what would really happen if negative gearing were removed?

For you as an investor, the answer goes beyond just tax benefits. The impact could reshape property prices, rental markets, and the way you build long-term wealth.  In this blog, we’ll break down what’s at stake, explore the possible outcomes, and highlight what it could mean for you as an investor.

What Is Negative Gearing?

Negative gearing happens when the rental income you earn from a property is less than your expenses (mortgage interest, rates, maintenance, insurance, etc.). The shortfall is a “loss” that you can currently offset against your taxable income.

For example:

• You earn $100,000 per year
• Your investment property makes a $10,000 loss.
• With negative gearing, you’re only taxed on $90,000 instead of $100,000.

This tax deduction can make holding a property easier in the early years, particularly if rental income doesn’t yet cover your costs.

By contrast, positive gearing (or positive cash flow) means your rental income is higher than your expenses. In that case, the extra income is added to your taxable earnings.

What Happens If Negative Gearing Is Abolished?

‍

Negative gearing is once again making headlines in Australia. With housing affordability at crisis levels and rents soaring in capital cities, the debate over whether negative gearing should stay or go has resurfaced. Politicians are under pressure to ease the burden on first-home buyers, while economists argue that scrapping the policy could free up the market and redirect incentives away from tax-driven investing.

But for investors, the big question isn’t just if it will be removed, it’s what would happen if it is removed. 

If negative gearing is removed, you would no longer be able to claim property investment losses as a tax deduction. Here’s what that could mean for you and the broader market:

1. Short-Term Pain for Some Investors

• Investors who purchased property mainly for tax benefits may struggle to hold on.
• Without the offset, negatively geared properties could become unaffordable.
• This could lead to a sell-off of poorly performing or over-leveraged properties.

2. Impact on Property Prices

• Some segments of the market may experience downward pressure if investor demand falls.
• However, quality properties in undersupplied areas are still likely to grow because demand from renters and owner-occupiers remains strong.

3. Rental Market Pressures

• Investors leaving the market could reduce rental supply.
• Fewer rental properties may push rents higher, especially in capital cities where vacancy rates are already low.

4. Shift Towards Stronger Investment Strategies

• You’ll see a sharper divide between “tax-driven” investments and growth-driven investments.
• Investors focusing on capital growth and positive cash flow will be in a stronger position.
  
  

Why Removing Negative Gearing May Not Be a Disaster

History gives us clues. In the 1980s, when negative gearing was briefly abolished, rents in many markets increased. The policy was reversed within two years because it didn’t deliver the intended affordability benefits.

If it happened again, you’d likely see:

• Higher rental prices in major cities.
• More demand for high-quality investment properties.
• Developers pulling back on new housing supply (reducing future stock).

The result? Long-term property prices could actually rise due to undersupply.

What About Capital Gains Tax (CGT) Discounts?

Alongside negative gearing, there are often discussions about reducing or removing the 50% Capital Gains Tax discount. Currently, if you hold a property for more than 12 months, only half your capital gain is taxable.

If that discount were removed, you might see:

• Investors holding onto property for longer (to avoid higher tax bills).
• Fewer transactions in the market, reducing supply for buyers.
• A stronger preference for principal place of residence (which is exempt from CGT).

This could slow down housing turnover, but again, it wouldn’t remove the long-term demand for quality investments.

What This Means for You as an Investor

If negative gearing was to be removed, your success as an investor would depend less on tax benefits and more on strategy. Here’s what you should be focusing on when buying an investment property:

• Buy for growth, not tax deductions - A property that grows in value pays off regardless of tax settings.
  
  
• Target cash flow - Seek properties that can turn positively geared sooner, giving you sustainable income.
  
  
• Think long term - Market cycles, interest rates, and policies will always change. Long-term fundamentals of supply and demand matter most.
  
  
• Get expert advice - Buying the wrong property for the wrong reasons is far riskier than losing a tax break.
  
  

Your Next Step

Negative gearing may one day change, but if you’re investing with the right strategy, you don’t need to panic. In fact, if investors focused less on tax perks and more on fundamentals like growth areas, cash flow, and market timing, the market would likely become healthier.

For you, the opportunity is clear: focus on building a portfolio that performs with or without negative gearing.

At Search Property, we help clients buy strategically so they’re not reliant on tax incentives. Our team sources high-growth, cash-flow-friendly properties that stand the test of time. Book your free discovery call today and learn how to future-proof your investment strategy.