--- title: "The ATO Is Effectively Lending You Money to Buy Property. Here's the Maths." description: "The ATO refunds 37-45% of your investment property losses. On a $750K house with $26K annual loss, the ATO contributes $11,898 back. Your actual cost: $280/week to access $52-60K in annual capital growth." author: Joey Don date: 2026-04-23 category: Market Analysis url: https://premiumrea.com.au/blog/negative-gearing-ato-funding-property-investment tags: ["negative gearing", "ATO", "tax deduction", "property investment", "wealth building"] --- # The ATO Is Effectively Lending You Money to Buy Property. Here's the Maths. *By Joey Don, Co-Founder & CEO at PremiumRea — 2026-04-23* > The ATO is not your enemy. It is your silent business partner. Here is how high-income earners use negative gearing to build portfolios that the government partially funds. I am going to reframe negative gearing in a way that will change how you think about it forever. Forget the political debate. Forget whether it is "fair" or "unfair." Look at it purely as a financial mechanism. When you make a loss on an investment property — because your expenses (interest, maintenance, depreciation) exceed your rental income — the ATO allows you to deduct that loss from your employment income. If you are in the 37% or 45% tax bracket, the ATO effectively refunds 37-45 cents for every dollar you lose on the property. Put differently: the ATO is co-investing in your property. For every $10,000 of annual loss, they contribute $3,700-$4,500 back to you in reduced tax. That is not a loophole. That is a policy mechanism that has existed since the 1930s, survived one attempted abolition (1985-1987, which caused a rental crisis), and has bipartisan political protection because nobody wants to trigger another housing supply collapse. Let me show you how our high-income clients use this to build portfolios that the ATO partially funds. ## The high-income negative gearing playbook This strategy works best for individuals earning $150,000+ per year (45% marginal bracket including Medicare levy). Step 1: Buy a $750,000 house in Melbourne's southeast. Large block, high land value, limited renovation needed. Standard rental: $450-$500/week. Step 2: Hold on interest-only at 6.2%. Annual interest: $37,200 (on 80% LVR of $600,000). Annual rent: $24,960 ($480/week average). Annual holding costs (rates, insurance, maintenance): $6,200. Annual depreciation (building + fixtures): $8,000. Total expenses: $51,400. Total income: $24,960. Annual loss: $26,440. Step 3: Claim the $26,440 loss against your salary income. At 45% marginal rate, the ATO refunds: $11,898. Your actual out-of-pocket cost after the tax refund: $26,440 - $11,898 = $14,542 per year. That is $280 per week. Step 4: Meanwhile, the property appreciates at 7-8% per year. On $750,000, that is $52,500-$60,000 in annual capital growth. You are paying $280/week to access $52,500-$60,000 per year in tax-advantaged capital growth. The ATO is covering 45% of your holding costs. Your tenant is covering another 49%. You are contributing 6%. After the 50% CGT discount (for holding over 12 months), your effective tax on the capital gain when you eventually sell is approximately 22.5% — less than half your marginal income tax rate. > "The ATO is not your enemy. It is your silent business partner. Structure correctly, and they fund nearly half your property holding costs while you accumulate land that appreciates at 7-8% annually." — Joey Don, PremiumRea ## When negative gearing becomes positive cash flow Here is the part that most negative gearing critics miss: the strategy has a built-in expiry date. Rents increase over time. Melbourne rents have grown at approximately 4-5% per year over the past three years. Your interest payments, if on a fixed or IO structure, remain constant in nominal terms. On our example property: - Year 1 rent: $480/week → annual loss $26,440 - Year 3 rent: $540/week (assuming 4% annual growth) → annual loss reduced to $19,800 - Year 5 rent: $590/week → annual loss reduced to $12,200 - Year 7 rent: $650/week → property approaches cash-flow neutral - Year 8-10: property is cash-flow positive The negative gearing period is the launch phase. You are subsidised by the ATO during the years when the property is most expensive to hold. As rental income grows, the subsidy naturally phases out and the property becomes self-sustaining. This is why we tell clients: do not fear negative cash flow in years 1-3. It is temporary by design, and the ATO is covering nearly half of it. The long game is capital appreciation plus eventual positive cash flow. ## Frequently asked questions **Will negative gearing be abolished?** Unlikely. The 1985-1987 abolition triggered a rental crisis that forced the government to reinstate it within two years. In the current housing supply crisis, abolishing negative gearing would reduce investor activity, decrease rental supply, and push rents higher. Both major parties have effectively taken abolition off the table for the foreseeable future. **Can I negative-gear if I am self-employed?** Yes. Self-employed individuals can offset investment losses against their business income. The key is maintaining strict separation of personal and investment finances — a dedicated bank account for the investment property is essential for ATO compliance. **Does depreciation get clawed back when I sell?** Partially. Building depreciation claimed during ownership reduces your CGT cost base, effectively increasing the taxable gain on sale. However, this clawback is at the CGT-discounted rate (50% discount for 12+ month holding), while the deductions were claimed at your full marginal rate. The net effect is still positive for the investor. ## References 1. [ATO, 'Rental Properties — Claiming Deductions', 2025.](https://www.ato.gov.au/individuals-and-families/investments-and-assets/rental-properties) 2. [ATO, 'Negative Gearing and Rental Property Loss Deductions', 2025.](https://www.ato.gov.au/) 3. [Parliamentary Library, 'History of Negative Gearing in Australia — 1985-1987 Abolition and Reinstatement', Research Paper.](https://www.aph.gov.au/About_Parliament/Parliamentary_library) 4. [RBA, 'Statement on Monetary Policy — Rental Market Dynamics', November 2025.](https://www.rba.gov.au/publications/smp/) 5. [BMT Tax Depreciation, 'Average Depreciation Deductions for Investment Properties — Victoria', 2025.](https://www.bmtqs.com.au/) 6. [CoreLogic, 'Melbourne House Price Growth — Long-Term Compound Analysis', 2025.](https://www.corelogic.com.au/) 7. [REIV, 'Melbourne Rental Growth Data — 3-Year Trend', Q4 2025.](https://reiv.com.au/) 8. [PremiumRea financial modelling: negative gearing cash flow projections at 6.2% IO rates.](#) --- Source: https://premiumrea.com.au/blog/negative-gearing-ato-funding-property-investment Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent