Negative gearing gets talked about a lot in debates about housing and the federal budget, but it is not always explained all that clearly. Here we’ll go through what it means, why some investors use it, how the rules changed in the 1980s, why capital gains tax keeps coming up, and why the issue is back in focus ahead of the 2026 federal budget.
Why is negative gearing back in focus?
One reason negative gearing has become such a live issue is that it’s not just a technical tax topic. It now sits inside a wider debate about housing affordability, whether younger Australians have a fair shot at home ownership, and whether the tax system is giving investors too much of an edge over people trying to buy a home to live in.
The Senate set up a select committee in November 2025 to examine the capital gains tax discount and related issues, and when it reported in March 2026 it said there was evidence that the capital gains tax discount, together with negative gearing, had shifted housing ownership away from owner-occupiers and towards investors, with implications for intergenerational inequality.
That helps explain why the issue keeps returning. As CommBank’s 2026 federal budget preview notes, the government is framing the current discussion about negative gearing around housing and intergenerational equity, and not just tax. Whether or not any changes are announced this budget, that is a big part of why the debate has become so prominent again.
What does negative gearing actually mean?
Surprisingly, according to the federal Treasury, you won’t find the phrase “negative gearing” in tax legislation.
But in everyday terms, it describes a situation where the costs of holding an income-producing asset are greater than the income that asset brings in. In investment terms, “gearing” means using borrowed money to make an investment, so an investment becomes “negatively geared” when the income it brings in is less than the interest and other costs of holding it.
As well as property, the term can also apply to shares and other investments. Because Australia’s personal tax system generally taxes net income, a negatively geared investor can usually deduct investment losses against other income, such as salary and wages.
For example:
- Someone might buy an investment property that brings in $30,000 a year in rent
- But its costs $38,000 a year to hold the property once interest and other deductible expenses are counted.
- So that investor is $8,000 out of pocket for the year, and some of those costs may be tax deductible.
The same basic idea can apply outside housing too. If someone borrows to buy shares and the income from those shares is lower than the costs of holding them, that can also be a negatively geared investment.
Why would anyone want to lose money like that?
At first glance, it can sound backwards to buy an investment that loses money.
But some investors are not just looking at what an asset earns in a given year. They may be willing to wear a loss for a time if they think the asset will rise in value over the long term, or if they expect the income made from it to improve.
For example, someone might buy an investment property that costs more to hold than it brings in today, hoping rents will rise over time and the property will be worth more when they eventually sell it. The same thinking can apply to shares and other investments.
For some investors, the tax deduction also matters. If the investment makes a loss, that loss can reduce their taxable income in the meantime, which can make it easier to carry. That does not necessarily mean the investment is only about tax, but it helps explain why some people are prepared to lose money on the way through if they expect to come out ahead later.
