According to Your Investment Property, Australian property investors face a sharply more complex gearing calculation this financial year, with proposed tax changes reshaping the risk-return equation for both positively and negatively geared portfolios. The 30 June deadline does not just close the books — it crystallises deduction positions, rental income declarations, and capital gains events that will flow directly into 2025–26 tax returns. For investors who have not reviewed their gearing structure this year, the cost of inaction is measurable.
Positive vs Negative Gearing: The Core Distinction Investors Are Re-examining
Gearing describes the relationship between a property's rental income and its total holding costs — interest repayments, rates, insurance, property management fees, and maintenance. A negatively geared property generates less rental income than its costs, producing a net rental loss that — under current Australian tax law — can be offset against other assessable income, including wages and salary. A positively geared property does the reverse: it generates more income than it costs to hold, producing taxable net income but also immediate cash flow. Your Investment Property notes that both strategies carry distinct risk profiles and that the optimal choice depends heavily on an investor's personal tax rate, borrowing capacity, and time horizon.
For investors in higher marginal tax brackets, negative gearing has historically delivered its greatest benefit by converting taxable income into a property loss that reduces tax payable at the marginal rate. That arithmetic changes materially if the deduction is restricted or removed, making the gearing calculation for established dwellings far less attractive on an after-tax basis.
The EOFY Deduction Audit: What Can Still Be Claimed This Year
The 2025–26 financial year offers investors a window under existing rules to maximise legitimate deductions on established investment properties. Claimable items include loan interest, property management fees, council rates, insurance premiums, repairs and maintenance carried out this financial year, and depreciation on qualifying assets. Depreciation schedules remain one of the most consistently underutilised deduction categories available to property investors. A professionally prepared depreciation schedule from a quantity surveyor can identify claimable deductions on structural and plant and equipment assets that investors would otherwise miss. For a detailed explanation of how these schedules work, see Property Depreciation Schedules Explained. For the full breakdown of deductible items, see our Australian Property Tax Guide.
Rental Yield, Cash Flow, and the Gearing Threshold
Whether a property is positively or negatively geared is not a fixed characteristic — it shifts with interest rates, rental market conditions, and the investor's financing structure. Rising borrowing costs have pushed many previously cash-flow-neutral properties into negative territory. For investors who relied on low rates to maintain positive gearing, the current environment demands a recalculation.
When interest rates rise faster than rents, the line between positive and negative gearing shifts — and for thousands of Australian investors, that shift has already happened without them recalculating their position. The EOFY moment is the natural trigger to reassess, before another full year of unreviewed cash flow compounds the outcome.
Rental yields vary considerably across Australian markets, and that variation directly affects where the gearing threshold sits. Understanding how gross and net rental yield interact with financing costs is foundational to any gearing assessment — our guide to Understanding Rental Yield in Australian Property provides the calculation framework investors need before making structural decisions. Realestate.com.au has noted that EOFY is the key moment for property owners to audit these figures and ensure their loan structure — including offset account balances, redraw usage, and interest-only versus principal-and-interest terms — is optimised for their current tax position. Tracking these dynamics through property-level data tools, including those available at WealthWatchPro, can sharpen the before-and-after tax comparison.
Investors holding properties in markets experiencing rent growth may find their gearing position has improved organically over the past 12 months as rents have risen faster than holding costs. In those cases, a property that was negatively geared in 2024–25 may now be generating positive cash flow, which changes the investor's tax exposure entirely. Failing to identify this shift means filing a return that may be incorrect in either direction.
Positioning for 2026–27
Looking ahead to 2026–27, the policy environment for gearing deductions on established properties is the dominant uncertainty. Your Investment Property notes that proposed tax changes are among the key considerations investors must weigh when assessing their gearing structure. Investors with established negatively geared portfolios should model their after-tax returns under a scenario where deductions are quarantined to new builds only. For some, the outcome may accelerate a decision to sell — particularly in markets like Sydney, where realestate.com.au has reported buyer retreat from auctions following announced tax changes. For others,
This article was produced with AI assistance and reviewed for accuracy. Content is for informational purposes only and does not constitute financial or property investment advice.
