Negative gearing is when the cost of holding an investment property is more than the rent it earns, so the property runs at a loss. For borrowing capacity the question is narrower than the tax one: how much of the rent a lender counts, how it assesses the debt and whether it adds any tax benefit back into your income.
On episode 101 of the podcast, a panel worked through the proposed changes to negative gearing and what they could mean for investors. The finance point from that conversation deserves its own page: lender policy does not wait for legislation, and it does not treat every investor the same way.
How common is negative gearing?
Very. According to the Australian Taxation Office, 2,261,080 individuals held an interest in a rental property in 2022–23, and 1,117,175 of them, about 49 per cent, reported a net rental loss. A year earlier it was about 42 per cent (ATO, Taxation statistics 2022–23). As interest costs rose, more investors moved into a loss position. Around half of all property investors are relying, to some degree, on a property that costs more than it earns.
How does a lender treat a negatively geared property?
Not the way a tax return does. A lender is working out whether your income can carry all of your debts with room to spare. It builds that picture from its own rules.
| How lenders tend to treat it | Why it matters | |
|---|---|---|
| Rent | Only part of the gross rent is counted | Allows for vacancy, management and running costs |
| New loan | Assessed above the rate you will pay | APRA requires a buffer of 3 percentage points |
| Existing loans | Often assessed on principal and interest | Higher than an interest-only repayment |
| The tax benefit | Added back by some lenders, ignored by others | The same investor can get two different answers |
| Living costs | Your declared costs or a benchmark, whichever is higher | Sets the floor under the whole calculation |
The buffer is the largest single factor. APRA has kept its serviceability buffer at 3 percentage points, so a loan is assessed as if the rate were 3 points higher than it is (APRA, May 2026).
What is the negative gearing add-back?
Where a property runs at a loss, that loss can reduce the tax you pay. Some lenders recognise this by adding the estimated tax saving back into your assessed income. Others leave it out entirely.
The difference can be meaningful for an investor with several properties. Two lenders looking at the same person, the same income and the same portfolio can reach different borrowing capacities, purely because one counts the add-back and one does not. Neither is wrong. They are applying different policy.
What happens if the rules change?
The panel on episode 101 was careful about this, and so are we. Proposals are not law. Detail changes, timelines slip and final rules often look different from early commentary. Do not restructure a portfolio around a headline.
Lender policy is a separate matter. Lenders can change how they treat negative gearing benefits and rental income at any time, and some have already adjusted. Where the add-back is removed from a calculation, borrowing capacity can fall for certain investors without any change to their income or their properties.
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Should a purchase rely on the tax benefit?
A loss is still a loss. Negative gearing reduces the after-tax cost of holding a property. It does not turn the shortfall into income. The cash still leaves your account each month, and the tax benefit arrives later and only in part.
A purchase that only works after the tax saving is a thin purchase. If the rules, your income or your tax position change, the margin goes with them. The stronger test is whether the property and the plan hold up on cash flow first, with any tax benefit treated as a bonus. How negative gearing applies to you is a question for your accountant.
How should investors prepare?
- Know which policy you rely on. If your current capacity depends on an add-back, you should know that before the next application, not during it.
- Test both ways. Model capacity with the add-back and without it. The gap is your exposure to a policy change.
- Look at the structure. Repayment types, loan splits and which loans sit with which lender all change the assessment. See interest-only vs principal and interest.
- Do not chase the highest number. The lender offering the most is not automatically the right choice. Being approved for an amount is not the same as it being sustainable.
- Keep your advisers in the same conversation. Tax, planning and finance decisions move each other.
Common questions
Does negative gearing increase borrowing capacity?
It can with some lenders. Certain lenders add the estimated tax saving from a rental loss back into your assessed income, which lifts borrowing capacity. Others ignore it. The underlying loss still counts against you, because the loan repayments are assessed in full.
How much rental income do lenders count?
Lenders generally count only part of the gross rent, to allow for vacancy, management fees and running costs. The proportion varies by lender and by property type, which is one reason borrowing capacity differs between lenders.
Will changes to negative gearing reduce my borrowing capacity?
Proposed tax changes are not law until legislated, and the detail can change. Lender policy is separate and can change at any time. Where a lender stops adding back negative gearing benefits, borrowing capacity can fall for investors who relied on that treatment.
Is a negatively geared property a good investment?
That depends on your goals, cash flow and tax position. It is a question for your accountant and licensed financial adviser. From a finance view, a property that only works after the tax benefit leaves little margin if rules, income or rates change.
The takeaway
Negative gearing is a tax outcome. Borrowing capacity is a lending assessment. They use different rules, and the lending rules differ again from one lender to the next.
Know how your current lenders treat your rent and your losses, and test your capacity without the add-back. If you want that mapped across your portfolio, Book a Call. Fifteen minutes with the team will tell you whether your structure is ready for the next move.
This article is general information only. It does not take your individual circumstances into account and is not credit, tax, legal or financial product advice. Proposed tax changes are not law until legislated. How negative gearing applies to you is a matter for your accountant. All lending is subject to individual assessment and lender criteria.