How to Use Negative Gearing in Sutherland

Negative gearing lets you claim the loss your rental property makes each year as a tax deduction against your other income.

For investors in Sutherland and the wider Shire, where median unit prices sit around $700,000 and rental yields typically hover between 3.5% and 4%, many properties run at a loss once you account for loan repayments, strata fees, and maintenance. That loss can reduce your taxable income, which is why negative gearing has been a cornerstone of property investment strategy for decades. But the 2026-27 Federal Budget has changed how this works for properties purchased after 12 May 2026, so if you're considering an investment purchase now, you need to understand what applies to you.

What Negative Gearing Actually Means for Your Tax Return

Negative gearing occurs when your rental expenses exceed your rental income. You deduct that shortfall from your taxable income, which lowers the amount of tax you pay each year.

Consider an investor who buys a two-bedroom unit in Sutherland for $720,000 with a 20% deposit. They borrow $576,000 on an interest-only loan. At current variable rates, annual interest might be around $28,000. Add $4,000 in strata fees, $1,200 for council rates, $800 for landlord insurance, $1,000 in property management fees, and another $1,500 for repairs and water charges. Total annual expenses come to roughly $36,500. If the unit rents for $650 per week, that's $33,800 in rental income. The property runs at a loss of $2,700 per year. That $2,700 can be deducted from the investor's other income, such as salary, which reduces their tax bill. If they're on a marginal tax rate of 37%, that deduction saves them around $1,000 in tax.

How the Budget Changes Affect Established Properties Purchased After May 2026

From 1 July 2027, negative gearing deductions will be limited if you bought an established residential property after 7:30 pm on 12 May 2026.

Under the new rules, rental losses from these properties can only be offset against rental income or capital gains from other residential property, not against your wage or salary. If you don't have other rental income to offset, the loss carries forward and can be used in future years when you do have rental income or when you sell the property and realise a capital gain. If you already owned your investment property before Budget night, nothing changes. Your existing deductions continue as they always have. The same applies if you buy a new build rather than an established property, as new builds remain fully eligible for negative gearing against all income.

Why Investors in Sutherland Still Consider Negatively Geared Properties

Even with restricted deductions, a negatively geared property can still make sense if the long-term capital growth justifies the annual shortfall.

Sutherland and surrounding suburbs like Jannali, Gymea, and Caringbah have historically seen steady capital growth driven by proximity to the train line, access to Cronulla beaches, and strong demand from families and downsizers. If an investor expects the property to appreciate over a 10 to 15 year hold period, the tax deduction is only one part of the equation. The carried-forward losses still reduce taxable income when the property is eventually sold, which can help offset capital gains tax. For investors who already have multiple properties, the new rules may not change much, since rental losses from a newly purchased property can still be offset against income from other rentals in the portfolio.

Interest-Only Loans and How They Affect Cash Flow

Most investors use interest-only repayments to maximise their deductions and keep holding costs down.

When you pay interest only, your entire loan repayment is tax-deductible, whereas principal repayments are not. This means your annual deductions are higher, and your out-of-pocket cash flow is lower. An investment loan structured as interest-only for the first five years gives you time to build equity through capital growth without the pressure of higher repayments. After the interest-only period ends, the loan typically reverts to principal and interest, which increases repayments but also starts paying down the debt. Some investors refinance at that point to lock in another interest-only period, especially if they're planning to hold the property long-term and want to keep cash flow manageable.

Claimable Expenses Beyond Loan Interest

Loan interest is usually the largest deduction, but there are many other ongoing costs you can claim.

Body corporate fees, council rates, water charges, landlord insurance, property management fees, repairs and maintenance, and depreciation on the building and fixtures all reduce your taxable rental income. In Sutherland, where many investment properties are units or townhouses, body corporate fees can range from $3,000 to $6,000 per year depending on the complex and amenities. These fees are fully deductible. Depreciation is often overlooked but can add thousands of dollars in deductions each year, especially for newer properties. A quantity surveyor can prepare a depreciation schedule that outlines what you can claim over time. Keep in mind that capital improvements, such as renovating a kitchen, are not immediately deductible but can be claimed through depreciation or added to your cost base when calculating capital gains tax.

What Happens If You Bought Before Budget Night

If you purchased your investment property before 7:30 pm on 12 May 2026, you're not affected by the Budget changes.

Your negative gearing deductions continue to apply against all income, and the 50% capital gains tax discount remains in place when you eventually sell. This grandfathering is important because it means existing investors don't face a sudden change in how their tax position works. If you're refinancing an existing investment property, the new rules don't apply to you either. The changes are tied to the purchase date of the property, not the loan.

How Rental Income and Vacancy Rates Influence Your Deduction

The size of your negative gearing deduction depends on how much rental income you actually receive.

If your property sits vacant for several weeks between tenants, your annual rental income drops, which increases your loss and your deduction. Sutherland's vacancy rate tends to be low due to strong demand and limited new supply, but even a four-week gap between leases can cost you over $2,500 in lost rent. Property managers typically charge around 6% to 8% of the weekly rent plus letting fees, which are also deductible. If you're calculating whether a property will be negatively geared, use a realistic rental estimate based on recent leases in the same building or street, and factor in at least two to three weeks of vacancy per year.

Leveraging Equity from Your Home to Fund the Deposit

Many Sutherland investors use equity from their existing home rather than saving a separate cash deposit.

If your home has increased in value, you may be able to borrow against that equity to fund the deposit and purchase costs for an investment property. Lenders typically allow you to access equity up to 80% of your home's value without paying Lenders Mortgage Insurance. The interest on the portion of the loan used to purchase the investment is tax-deductible, but the portion used for private purposes is not, so it's important to keep the loans separate or clearly apportioned. A broker can help structure the loan so your deductions are maximised and your reporting stays clear. Using equity also means you're not tying up cash that might be needed for other purposes, and you can move quickly when the right property becomes available.

Capital Gains Tax and the New Indexed Discount from July 2027

From 1 July 2027, the 50% capital gains tax discount will be replaced with a discount based on inflation for properties bought after Budget night.

Under the new system, your cost base will be indexed to inflation, so you only pay tax on the real gain after accounting for the rising cost of living. A minimum 30% tax will apply to capital gains, and excess losses from negative gearing can be used to reduce the taxable gain when you sell. If you bought before 12 May 2026, the 50% discount still applies. If you buy a new build after that date, you can choose between the 50% discount or the indexed method, whichever gives you a lower tax outcome. For established properties purchased after Budget night, only the indexed method applies. The exact impact will depend on how long you hold the property and what inflation does over that period, but the carry-forward of unused losses means you're not losing the benefit of those deductions entirely.

Property investment is a long-term strategy, and tax rules are only one part of the decision. If you're weighing up whether to buy in Sutherland, or whether to hold or sell an existing investment, call one of our team or book an appointment at a time that works for you. We'll walk through your borrowing capacity, loan structure, and how the Budget changes apply to your situation so you can make an informed choice.

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