In short, negative gearing and the 50% CGT discount cut federal tax receipts by many billions a year — the exact toll changes with market activity and who’s claiming the breaks. The total varies by year and method, but it’s clearly large — billions annually, and the biggest slices go to a relatively small group of higher‑income property investors. I’ll start with the headline numbers, then walk through how the costs happen, who wins, common claiming errors, regional patterns and what reforms typically do to the budget.

Quick reference — key figures (at a glance)

  • 2,261,080 Australians had an “interest in property” (own at least one rental) in 2022–23.
  • An estimated 1.1 million investors reported net rental losses in 2022–23 and could rely on negative gearing to reduce taxable income.
  • Average net rental loss per negatively geared investor: roughly $10,000 (2022–23 estimate).
  • Estimated total net rental loss deductions claimed: about $11 billion in 2022–23 (rounded estimate).
  • Capital gains tax (CGT) discount: 50% for assets held 12 months or more — this rule still applies in 2026.
  • Estimated annual cost of the 50% CGT discount: roughly $16 billion (latest available estimates around 2023–24).
  • Combined annual tax concessions from negative gearing plus the CGT discount: around $24–30 billion a year using 2022–24 estimates; many analyses centre on ~ $27 billion.
  • Example tax outcome: a $500,000 capital gain taxed at a 50% discount reduces taxable capital gain to $250,000 — at a 39% marginal rate that’s ~$97,500 saved in tax compared with full taxation.
  • Example cash‑flow effect: a $10,000 net rental loss saves $3,250 in tax for someone on the 32.5% marginal rate (2026 tax thresholds apply).
  • Analyses of different reform options show a wide range of possible budget effects — some moves raise only a few billion, others a lot more, depending on what’s changed and how.

Detailed breakdown — what the numbers mean

Here’s the idea: if a rental costs you more in interest and expenses than it brings in rent, you can use that loss to reduce your other taxable income. That cuts tax bills today. The CGT discount reduces tax on capital gains when you sell. Put together, they reduce tax on rental property ownership both during ownership and at sale.

How this reduces government revenue in practice:

  • Net rental loss deductions: the ATO and analysis of tax returns show many investors declare losses in a year. Multiplying the number of losses by average loss size gives an annual deduction total — the figure used above (~$11 billion in 2022–23).
  • CGT discount: Treasury’s tax‑expenditure reporting and subsequent analysis estimate the forgone revenue from taxing only half of long‑term capital gains — estimates centre in the mid‑teens of billions annually (most recent public estimates around $16 billion a year).
  • Put together, the two concessions can add up to tens of billions in forgone revenue — exact totals depend on market churn and which taxpayers you count.

Who benefits — income and distribution

Concentration matters: the tax breaks aren’t spread evenly across taxpayers.

  • High‑income Australians are more likely to own multiple investment properties — they get bigger deductions and bigger discounted gains.
  • Rough estimates show a substantial share of the total value of concessions accrues to the top 20% of earners — figures commonly quoted in the 50–60% range in recent analyses (varies by year).
  • Around 2.26 million people have an interest in property (2022–23), but a smaller subset — roughly 1.1 million — actually claim net losses in a given year.

Step‑by‑step: how negative gearing appears on your tax return (process)

These are the usual steps investors or their tax agents follow when claiming rental property losses:

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  1. Record gross rental income for the financial year — include rent, bond forfeitures, and some fees.
  2. Compile allowable deductions: interest on loans, council rates, insurance, property management fees, repairs, travel (subject to current rules), and depreciation (if a schedule is used).
  3. Subtract deductions from rental income to calculate net rental income or net loss.
  4. If you have a net rental loss, include that loss in your individual tax return against other taxable income — it reduces your taxable income for that year.
  5. Keep records for at least five years — lenders, agents and receipts must be on hand if the ATO queries a claim.

Common mistakes investors make

  • Confusing repairs (deductible) with capital improvements (capital cost, not deductible immediately).
  • Claiming private or holiday use expenses as rental deductions.
  • Using incorrect depreciation schedules — a professionally prepared schedule costs between $400 and $2,000 depending on property complexity (2026 typical market range).
  • Failing to apportion expenses correctly when the property is vacant or used occasionally by the owner.
  • Misreporting borrowing costs — only interest related to the rental portion is deductible, not principal repayments.

Regional differences and scale

Negative gearing’s prevalence varies by city and state. Key points:

  • Capital cities with stronger investor markets — Sydney and Melbourne — account for a large share of investment properties and therefore a large share of deductions and discounted gains.
  • Investor concentration tends to be higher in NSW and Victoria simply because of market size; the per‑investor average deductions are similar across states once market values are accounted for.
  • Smaller markets show a higher share of owner‑occupiers and fewer investors, so the absolute dollar cost of concessions there's lower.

Alternatives and comparisons

Policymakers and investors often compare negative gearing with other tax or housing measures:

  • Cap or limit negative gearing to one property per investor — modelling by analysts shows potential annual revenue gains typically in the low billions (estimates vary: $4–$10 billion depending on design and behavioural responses).
  • Repeal CGT discount entirely — a high‑impact option; estimates show a multi‑billion annual revenue uplift (commonly modelled in the mid‑teens of billions per year).
  • Targeted housing supply measures — incentives for new builds or investor funds focused on new dwellings can be lower‑cost ways to increase rental stock without broad tax concessions.
  • Investing via dividend‑yielding shares or managed funds — these don’t get negative gearing treatment but may have franking credits and different tax treatments for capital gains.

Forecasts — what 2026 and beyond might look like

Short‑term (2026–2028):

  • If current rules remain, annual forgone revenue from negative gearing + CGT discount is likely to stay in the $24–30 billion range, depending on housing market gains and interest rates.
  • Rising interest rates tend to increase the size of net rental losses (more interest to deduct), which pushes up the annual deduction total in the short term.

Medium term (2028–2032):

  • If policymakers limit negative gearing (for example, allow it only for one investment property per person) many analyses show recurring budget gains — commonly modelled at $5–12 billion a year depending on grandfathering rules and transition periods.
  • If the CGT discount is scaled back or removed, the fiscal impact would be larger — a multi‑billion to double‑digit billion annual lift in receipts is the typical projection, with one‑off behavioural effects on sales and timing of disposals.

All forecasts depend on taxpayer behaviour. If investors sell to avoid concessions, there can be short‑term revenue spikes and long‑term changes to property ownership patterns.

Related Articles

Negative gearing and the CGT discount are major tax expenditures in Australia. In 2022–23 there were about 2.26 million people with investment property interests and roughly 1.1 million reporting net rental losses; average losses and the CGT discount together commonly produce a combined fiscal cost in the order of $24–30 billion a year using recent‑year estimates. Small changes in interest rates, property prices or policy design move those totals by billions. Reform options exist and they’re often modelled to raise several billion dollars annually, but design and transition rules matter — they change who pays and when. The facts above give the scale: millions of investors, billions of forgone revenue, and high concentration of benefits among higher‑income households.

This article was created with AI assistance.