Commentary abounds on the extent of negative gearing in Australia. This post explains what negative gearing means, and how many taxpayers in each electorate are using it in relation to their residential property investment.

Gearing is borrowing money to invest, including in property and shares. Investors can be positively or negatively geared, based on whether their investment income is more or less than their investment-related expenses. In Australia, the term ‘negative gearing’ usually relates to residential property investment. According to the Australian Taxation Office (the ATO), a rental property is ‘negatively geared’ where the deductible expenses (including interest on the loan borrowed to finance the property) exceed the income earned from the property. In Australia, negative gearing is popular, partly because our tax system allows investors to offset losses made on certain assets against other types of income earned (such as wages and salary income). This post focuses on individuals; however other taxable entities such as trusts can also negatively gear assets.

Data on the negative gearing of residential property by individuals can be found in the ATO’s publication Taxation Statistics which is released on an annual basis, and contains summary statistics of taxpayer data. The most recent data available for individuals relates to tax returns and schedules for the 2015–16 financial year. This data was released in April 2018. It includes the number of individuals who own negatively geared properties by postcode.[1] Data on the location of investment property (as opposed to the location of the individual taxpayer) is available by state/territory only. 

The Parliamentary Library has approximated the number of individuals within each Commonwealth Electorate Division (CED) who have reported a net rent loss (that is, they are negatively gearing property) in 2015–16, using the following methodology:

• The Library matched postal areas[2] to 2018 CED boundaries using a population weighted correspondence.[3]
• In order to apportion the number of people negatively gearing in those postal areas which cross CED boundaries, the Library has assumed the distribution of those negatively gearing is the same as the distribution of the population across the electorate. Whilst this is unlikely, it is the only method available.

Based on 2018 electoral boundaries, the three electorates with the largest absolute number of individuals conducting negatively gearing were Durack (WA), Mitchell (NSW) and Reid (NSW).

The electorates with the highest proportion of taxpayers negatively gearing were Durack (WA), Solomon (NT) and Mitchell (NSW). The full list of electorates, and number and proportion of individuals negatively gearing, is outlined in the table below. Similar data can be produced on individuals who are positively geared.

Source: Parliamentary Library analysis of ATO, Taxation Statistics 2016, Individuals, Table 6B.

[1] There are two ways in which individuals report to the ATO on their negative gearing arrangements for property through their tax return—through net rental property loss and net rent loss. Net rent loss is narrower in scope than net rental property loss. For example, the former only relates to property owned by individuals, and where property is located within Australia. However, the latter is not publically available by postcode. As such, any locational analysis needs to use net rent loss which is available by postcode. ABS has advised the postcode usually relates to the residential address.

[2] ‘Postal area’ is an ABS statistical area and may not strictly match delivery location of 'postcode' as used by Australia Post.

[3] Correspondences mathematically reassign data from one geographic region to another.

23 January 2019: The Parliamentary Library recently identified minor errors in the process used to allocate data by postcode to electorate.  This affected figures associated with four electorates (Bean, Lingiari, Lilley and Brisbane). These errors have now been corrected in the table above. The text did not require amendment.