Negative Gearing: How Australia's Policy Compares to the World

Is Australia's negative gearing policy as unique and controversial as it seems? How do other major economies handle property investment losses, and what can we learn from their approaches?

This guide will explore how negative gearing works in Australia and compare our system to the policies in New Zealand, the United States, Canada, and the United Kingdom. By the end, you'll have a clear picture of where Australia stands on the world stage.

Disclaimer: This information is for educational purposes only and is not financial advice. Tax laws are complex and subject to change.

What is Negative Gearing? A Quick Refresher

At its core, negative gearing is a simple concept. It occurs when the expenses associated with an investment asset are greater than the income it generates. While this can apply to any investment, it's most commonly discussed in the context of property.

For a rental property, you are "negatively geared" if your expenses—such as loan interest, maintenance, and management fees—are higher than the rental income you receive. In simple terms, your property is running at a loss.

How Negative Gearing Works in Australia: An Example

Australia has one of the most generous tax treatments for negative gearing in the world. You can read the full rules on the ATO website. Let's look at an example.

John, a high-income earner on a 47% marginal tax rate, buys an investment property.

• Annual Rental Income: $33,800
• Annual Running Costs (interest, fees, etc.): $38,000
• Initial Out-of-Pocket Loss: $4,200 per year

At this point, the property is negatively geared. But the tax benefits don't stop there. John can also claim depreciation—a non-cash deduction for the wear and tear on the building's structure and its assets, like carpets and appliances. This increases his taxable loss to $15,200.

Because Australia allows unlimited loss offsetting, John can use this entire $15,200 rental loss to reduce his taxable income from his salary. This saves him $7,144 in tax.

Let's look at his final cash flow:

• He was paying $4,200 out of pocket to run the property.
• His tax refund of $7,144 more than covers this loss.
• Final Outcome: John is now $2,944 in front each year, all while waiting for the property's value to rise.

This is the power of Australia's policy. Three key factors—generous depreciation claims, unlimited offsetting of losses against any other income, and high marginal tax rates—can transform a paper loss into a positive cash flow reality.

An International Comparison: Negative Gearing Around the World

So, how do other countries handle this? Let's take a look.

New Zealand: The "Ring-Fencing" Approach

New Zealand used to have a system just like Australia's. However, in 2019, they introduced "ring-fencing"rules for residential rental property. This means that rental losses are trapped within the property portfolio. They cannot be used to reduce taxable income from other sources like wages or a business. Instead, these losses can only be carried forward to offset future rental profits or capital gains from selling property.

After a brief period of phasing out interest expense deductions, the new government reversed this in 2025, allowing interest to be claimed again. However, the ring-fencing rules remain in place, making New Zealand's system significantly less attractive for property investors compared to Australia's.

The United States: Income Caps and a Professional Loophole

The US allows negative gearing, but with significant restrictions known as "passive activity loss limitations."

• If you earn under $100,000, you can deduct up to $25,000 in rental losses against your other income.
• This deduction phases out as your income increases, and disappears entirely once your income reaches $150,000. Losses must then be carried forward, similar to New Zealand's system.

However, there is a major loophole: the "real estate professional" status. If an investor meets strict IRS criteria for time commitment and participation in the property industry, their rental losses are no longer considered "passive," and they can deduct unlimited losses against their other income—just like in Australia. In Australia, this perk is given to every single property investor by default.

Canada: A "Reasonable Expectation of Profit"

At first glance, Canada's system looks similar to Australia's. Investors can deduct rental losses against their other income, regardless of how much they earn, as explained by the Canada Revenue Agency (CRA).

But the Canadian rules are much tighter in two key areas:

1. Reasonable Expectation of Profit: Canada's tax authority wants to see that a rental property is a legitimate business, not just a tax write-off. If a property makes losses for years with no clear path to profitability, these deductions can be denied. In Australia, there is no such rule.
2. Depreciation is Restricted: In Canada, depreciation (called Capital Cost Allowance) cannot be used to create or increase a rental loss. It can only be used to reduce a rental profit down to zero. In Australia, depreciation is a key driver that increases rental losses and boosts negative gearing benefits.

The United Kingdom: No Negative Gearing as We Know It

The UK system is the most restrictive. In 2017, they changed the rules so that mortgage interest is no longer a deductible expense. Instead, as HMRC explains, landlords receive a flat 20% tax credit on their mortgage interest. This directly reduces their final tax bill but offers far less benefit to high-income earners compared to a deduction.

Furthermore, UK landlords cannot claim any depreciation on residential buildings.

The biggest difference, however, is that even before these changes, rental losses in the UK have always been ring-fenced. They can only be carried forward to offset future rental profits and can never be used to reduce tax on salary or other income. In short, negative gearing as we know it in Australia simply doesn't exist in the UK.