How Does Negative Gearing Work in Victoria and What Role Does a Broker Play?

By Lowest Interest Rates Australia

Introduction

I’ll never forget the first time someone explained “negative gearing” to me. I nodded like I understood, pretending I was a financial genius, while secretly thinking, “Wait… how can losing money help me make money?”

Fast-forward a few years (and a few properties later), and I can confidently say that negative gearing is one of the most powerful—yet often misunderstood—tools available to property investors in Victoria. Used wisely, it can help reduce your taxable income, grow your investment portfolio, and build long-term wealth. Used poorly, it can cause serious financial stress.

That’s why working with a knowledgeable mortgage broker makes such a difference. A broker doesn’t just find you a loan—they help you structure it in a way that complements your investment and tax strategy. In this article, we’ll break down how negative gearing actually works in Victoria, who benefits from it, and how a broker can help you make the most of it while minimising risk.

Table of Contents

1. What Is Negative Gearing?
2. How Negative Gearing Works in Victoria
3. Example: How Negative Gearing Looks in Practice
4. Benefits of Negative Gearing for Victorian Investors
5. Risks and Considerations
6. Negative vs Positive Gearing
7. How Negative Gearing Affects Your Tax Return
8. What Role Does a Mortgage Broker Play?
9. Using Negative Gearing as Part of a Broader Investment Strategy
10. Final Thoughts – Work with Lowest Interest Rates

What Is Negative Gearing?

Let’s start with the basics. Gearing simply refers to borrowing money to invest in an asset—like property. When your property expenses (loan interest, maintenance, insurance, etc.) are higher than the rental income you receive, you’re said to be “negatively geared.”

In other words, your investment is technically running at a loss—but that loss can work in your favour because it’s tax-deductible. The shortfall can be deducted from your taxable income, reducing the amount of tax you pay.

It might sound counterintuitive, but many Australian investors use negative gearing as a strategy to manage cash flow while their property appreciates in value over time.

How Negative Gearing Works in Victoria

In Victoria, as in the rest of Australia, negative gearing is regulated by federal tax law but applied at a local level through your property and investment activities. Here’s how it generally works:

• You take out an investment loan to buy a property.
• Your rental income is less than the total costs of owning the property (loan interest, maintenance, insurance, rates, etc.).
• The difference—the loss—can be claimed as a tax deduction against your other income (like your salary).
• This reduces your taxable income, which means you pay less tax overall.

For example, if you earn $120,000 a year from your job and you incur a $10,000 loss on your investment property, you can deduct that amount. You’re then taxed on $110,000 instead of $120,000—effectively saving you money on tax while holding a long-term asset that’s (hopefully) growing in value.

Example: How Negative Gearing Looks in Practice

Let’s use a simple scenario.

Say you buy an investment property in Geelong for $600,000. You take out a loan of $480,000 (80% LVR) with an interest rate of 6%. That means your annual interest payments are around $28,800. Add $4,000 for maintenance, $2,500 for rates, and $1,000 for insurance—your total annual costs are $36,300.

Your rental income, however, is $30,000 per year. That means your property runs at a loss of $6,300. Because you’re negatively geared, you can claim that $6,300 loss as a deduction on your taxable income.

At a marginal tax rate of 37%, that deduction saves you approximately $2,331 in tax. So while your property still costs you money to hold, the tax benefit softens the blow—and ideally, rising property values over time make up for the temporary loss.

Benefits of Negative Gearing for Victorian Investors

Used strategically, negative gearing offers several advantages for property investors in Victoria:

1. Tax Savings

The main drawcard. Negative gearing allows you to offset property losses against your income, reducing your taxable income and your tax bill.

2. Long-Term Capital Growth

While you might be cash flow negative now, property values in Victoria—especially in growth areas like Melbourne’s inner suburbs and regional hubs like Ballarat or Bendigo—often appreciate significantly over time.

3. Portfolio Expansion

Because the losses are tax-deductible, investors can often afford to hold more properties simultaneously—helping them grow wealth faster.

4. Flexibility in Loan Structures

With the right broker, you can structure your loan to maximise deductible interest payments, potentially making your negative gearing strategy even more effective.

Risks and Considerations

While the benefits are appealing, negative gearing isn’t without its downsides. Here are the key risks:

1. Dependence on Capital Growth

If property prices stagnate or fall, your investment could remain a long-term loss.

2. Cash Flow Pressure

Because expenses exceed income, you’ll need to cover shortfalls out of your own pocket until the property turns positive—or you sell.

3. Rising Interest Rates

Higher rates mean higher repayments, which can increase your losses and reduce your financial cushion.

4. Policy Changes

While negative gearing is currently legal and popular in Australia, government policies can change. Investors should keep up to date with tax laws.

In short: negative gearing can be a powerful wealth-building tool—but only if you can comfortably manage the associated costs and risks.

Negative vs Positive Gearing

It’s worth comparing the two sides of the coin:

Neither is “better” across the board—it depends on your goals. Many investors start negatively geared, aiming for capital growth, and move toward positive gearing as rents rise and loans shrink.

How Negative Gearing Affects Your Tax Return

Here’s what you can typically claim as deductions through negative gearing:

• Loan interest payments
• Property management fees
• Maintenance and repair costs
• Council rates and insurance
• Depreciation on the building and fixtures
• Legal and accounting costs related to the property

When you submit your tax return, your accountant will include these expenses to calculate your net loss and apply the deduction to your taxable income.

💡 Tip: Keeping accurate records and invoices throughout the year makes this process much smoother—and ensures you don’t miss out on eligible deductions.

What Role Does a Mortgage Broker Play?

Now, let’s talk about where a mortgage broker fits into all this. Negative gearing isn’t just about property—it’s about finance strategy. That’s where your broker becomes your most valuable ally.

Here’s how a broker helps you navigate negative gearing:

• Loan structuring: Brokers help you choose the right loan type (interest-only, fixed, or split) to maximise deductible interest payments while managing cash flow.
• Access to lenders: They can compare investment loan options from dozens of banks and lenders, including those with flexible terms or competitive rates for investors.
• Equity strategy: Brokers can show you how to leverage equity from one property to fund another, expanding your portfolio strategically.
• Tax coordination: While brokers don’t provide tax advice, they work closely with your accountant to ensure your loan structure supports your tax strategy.
• Cash flow forecasting: They can estimate your ongoing loan costs and show how rent, expenses, and interest interact—so you know exactly what your shortfall will be.
• Risk management: Brokers ensure you’re not overleveraged by reviewing your Debt-to-Income (DTI) ratio and serviceability limits.

Simply put, your broker helps you make sure negative gearing works for you—not against you.

Using Negative Gearing as Part of a Broader Investment Strategy

Negative gearing shouldn’t exist in a vacuum. It’s one piece of a bigger financial puzzle. Successful investors use it alongside other strategies like:

• Positive gearing: Over time, rising rents can shift your property from negative to positive cash flow.
• Capital growth focus: Targeting suburbs with strong long-term appreciation potential can offset short-term losses.
• Debt recycling: Some investors reinvest tax refunds and rental income to pay down non-deductible debt faster.
• Portfolio diversification: Spreading investments across different properties or regions reduces risk.

A knowledgeable broker can help align your loan structures with these strategies, ensuring your finances grow sustainably and efficiently.

Final Thoughts – Work with Lowest Interest Rates

So, how does negative gearing work in Victoria—and what role does a broker play? In short, negative gearing lets investors offset property losses against taxable income, potentially saving thousands in tax while building wealth through property appreciation. But it’s not without its challenges. Interest rates, cash flow, and property performance all play crucial roles.

That’s why partnering with an experienced mortgage broker, like the team at Lowest Interest Rates, is so important. They understand how to structure investment loans for maximum efficiency, connect you with lenders that fit your goals, and help you make informed decisions every step of the way.

Whether you’re buying your first investment property or adding to your growing portfolio, they’ll ensure your loan strategy complements your negative gearing approach—so you can minimise stress and maximise returns.

🏠 Ready to make negative gearing work for you? Visit LowestInterestRates.com.au today to speak with a friendly Melbourne mortgage broker who can guide you through your next investment move with confidence.