Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
Negative Gearing in Sydney 2026
Negative gearing remains one of Australia's most significant property investment tax incentives, and in Sydney's high-price, moderate-yield market, almost every investment property purchased with a loan is negatively geared in the early years. Understanding how the tax benefit works, and whether the capital growth assumption underpinning the strategy holds, is essential for every Sydney investor.
Negative gearing is a means to an end, not an end in itself. The tax benefit makes a negatively geared property cheaper to hold than it otherwise would be, but the investment only makes sense if the capital growth eventually delivers a total return that justifies the holding cost. In Sydney's inner and middle ring markets, 30-year history supports that assumption. In some outer suburban markets, it's less clear.
How Negative Gearing Works
A property is negatively geared when the cost of owning it (interest + expenses) exceeds the rental income. The loss is deductible against your other income, reducing your tax bill. The strategy relies on capital growth over time compensating for the annual cashflow deficit.
Sydney-Specific Negative Gearing Examples, 2026
Inner West Unit, Marrickville, $850,000
- Weekly rent: $680 ($35,360/year)
- Interest (6.59%, $680K IO): $44,812/year
- Running costs: $7,500
- Depreciation: $6,200
- Net loss: $23,152
- Tax benefit (37%): $8,566/year ($165/week)
- Weekly net cost after tax: ~$280/week
- Annual capital growth (at 6%): $51,000/year
Western Sydney House, Campbelltown, $700,000
- Weekly rent: $620 ($32,240/year)
- Interest (6.59%, $560K IO): $36,904/year
- Running costs: $6,800
- Depreciation: $9,500
- Net loss: $20,964
- Tax benefit (37%): $7,757/year ($149/week)
- Weekly net cost after tax: ~$215/week
- Annual capital growth (at 5%): $35,000/year
The Capital Growth Assumption
Negative gearing works as a strategy because property values (in well-selected markets) grow over time. A $100,000 accumulated tax benefit over 10 years is meaningless if the property hasn't grown in value. Sydney's inner and middle ring markets have historically delivered 6–8% per annum over 20+ year periods. Outer suburban and regional markets vary considerably.
ATO Focus in 2026
The ATO has flagged property investment deductions as a 2026 audit focus area. Ensure: all deductions are legitimate and documented, repairs are clearly separated from capital improvements, a quantity surveyor's depreciation schedule supports any depreciation claims, and holiday or partially personal properties are not fully claimed as investment properties.
