This offers an incentive to invest in the property market. It has also provided for an increase in the supply of rental properties.
Basically, negative gearing is a financial leverage. You as an investor borrow money to purchase an income-producing investment. But the income it produces is less than the total cost of owning and managing the investment. This includes the cost of depreciation, interest on the loan, bank charges, repairs and maintenance. The loss you incurred can then be deducted from your other income.
The ATO says that you can claim a deduction for your rental property related expenses for the period your property is rented or is genuinely available for rent.
If you use your property for both private and income-producing purposes, you can only claim a deduction for the portion of any expenses that relate to the income-producing use.
Many investors however don’t expect to make money from the rent. Their aim is to make a healthy profit off the property’s long-term capital growth. This is where the value of the property has increased beyond its total original purchase price and all management costs.
Please remember to consult your accountant and/or the ATO on all matters to ensure you don't miss out.