The False Debate
Online property forums often frame this as an either/or debate — as if all investors should chase one strategy and dismiss the other. In reality, the right choice depends entirely on your personal financial position, income, tax rate, risk tolerance, and investment timeline.
This guide helps you think through the decision clearly.
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Definitions
Positive Cash Flow (Positively Geared)
Your rental income exceeds all your holding costs including loan interest. After all expenses, you have money left over each month.The surplus is assessable income and you pay tax on it. But you're building equity without dipping into your own pocket.
Negative Cash Flow (Negatively Geared)
Your holding costs (including loan interest) exceed your rental income. You top up the shortfall from your own income.The loss is generally deductible against your other income, reducing your tax bill. Depreciation increases this deduction without being a cash cost.
Neutral Cash Flow
Your property roughly breaks even — income covers expenses. Less common but achievable through careful property selection or significant depreciation claiming.---
Who Benefits Most from Negative Gearing?
High-income earners: The higher your marginal tax rate, the more valuable the tax deduction. At 47% (including Medicare levy), every $1 of deductible loss returns 47 cents in tax. At 19%, the same loss returns only 19 cents.
Capital growth focus: Negative gearing as a strategy implicitly bets on capital growth outweighing the annual cash shortfall. This works well in Sydney and Melbourne over long periods but requires patience and holding power.
Those with strong income stability: You need to confidently service the shortfall every month, regardless of vacancies or rate rises.
Properties with high depreciation: A new apartment in Brisbane might be negatively geared on paper but effectively neutral or positive on an after-tax basis once depreciation is factored in. The "cost" of negative gearing is much lower than the headline loss suggests.
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Who Benefits Most from Positive Cash Flow?
Lower-to-middle income earners: If your marginal tax rate is 19–32.5%, the tax benefit of negative gearing is modest. Positive cash flow may deliver better overall returns.
Self-employed or variable income: If your income fluctuates, a property that costs you $400/week in shortfall can be stressful during slow periods. Positive cash flow properties remove this risk.
Retirees or near-retirees: Without a high taxable income to offset losses against, negative gearing loses most of its benefit. Income-generating properties are usually preferable.
Portfolio building: If your goal is to acquire multiple properties quickly, positive cash flow properties allow you to hold more assets without increasing your monthly financial commitment.
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The Depreciation Bridge
Depreciation can transform what appears to be a negatively geared property into one that's effectively neutral or positive on an after-tax basis.
Example — Brisbane new apartment:
- Purchase price: $580,000
- Weekly rent: $550 ($28,600/year)
- Annual expenses (ex-interest): $8,500
- Annual interest (80% LVR, 6.5%): $30,160
- Apparent annual loss: $10,060
- Tax benefit at 37%: $3,722
With depreciation ($12,000/year):
- Total deductions: $10,060 + $12,000 = $22,060
- Tax benefit: $8,162
- Net cost: $10,060 − ($8,162 − $3,722) = $5,620/year ($108/week)
A property requiring $108/week in top-up in exchange for capital growth potential and equity accumulation is a very different proposition to what the headline "negatively geared" label implies.
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A Framework for Your Decision
Step 1: Calculate your marginal tax rate. If it's below 32.5%, negative gearing delivers limited tax benefit — lean toward positive cash flow.
Step 2: Assess your income stability. Variable income → positive cash flow. Stable, growing income → negative gearing becomes more viable.
Step 3: Identify your timeline. Under 7 years → positive cash flow is lower risk. 10+ years → capital growth from high-growth markets may reward negative gearing.
Step 4: Model the depreciation. New properties can have $10,000–$20,000 in annual depreciation, substantially changing the after-tax position.
Step 5: Consider your portfolio stage. Early stage: preserve cash flow. Later stage: leverage equity for growth-focused assets.
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Modelling Your Specific Property
Use Koste's free ROI Calculator to model the full after-tax return for any property scenario, including the impact of depreciation. Or use the Tax Depreciation Calculator to estimate what a new or existing property would generate in annual deductions.