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What is negative gearing?

By Stephen Johnson

Investor landlords can claim a rental loss against their taxable income, an arrangement known as negative gearing.

Even if they don't make a loss, they can claim expenses from interest payments to council rates and property maintenance so they can reduce their taxable income.

In the 2019-20 financial year, 35 per cent of people who claimed rental deductions were in the top group of taxable income earners.

Treasury calculated that in 2019-20, 2.4million people claimed $51.3billion in rental deductions against their taxable income.

This cost the Budget $18.6billion in forgone revenue as 1.3million people claimed a loss from rental income failing to keep pace with mortgage repayments - a situation known as negative gearing.

The 'other rental deductions' category was claimed by 47 per cent of taxpayers claiming rental expenses on tax, including council rates and property maintain.

Another 44 per cent claimed interest deductions while 9 per cent claimed capital works.

Australians claimed an average deduction of $7,790 from rental deductions.

Men on average claimed $8,840 in rental deductions, compared with $6,660 for women - a $2,180 difference.

'A higher share of the reduction attributed to men reflects higher average deductions and higher average taxable incomes,' Treasury said.

Men claimed 59 per cent of deductions with women claiming 41 per cent.

Property investors are also reducing their taxable incomes to very low levels by claiming by rental deductions.

'The share of the benefit for those in the lowest taxable income decile is driven by both the number of tax filers and their relatively large average deductions,' Treasury said.

'These tax filers tend to have higher incomes before deductions but their claims for expenses associated with maintaining their rental property substantially reduce their taxable income, pushing them into lower deciles.'

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