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A cash flow positive property is one where the rent coming in is more than the costs of holding it, so it produces a surplus rather than a shortfall. A negatively geared property is the opposite — the costs, including loan interest, are more than the rental income, producing a net rental loss. Under current law, that loss is generally deductible against your other income. An enacted change starting from the 2027-28 income year narrows that, for residential property, in a way this guide sets out below.

Neither structure is “better” in the abstract — which one suits you depends on your cash flow, your income, your risk appetite and your own tax position, which is why this is a registered-tax-agent conversation rather than a rule of thumb.

What is cash flow positive property?

A property is cash flow positive when the rental income it earns is greater than the costs of holding it — loan interest, rates, insurance, management fees, maintenance and the like. The surplus is a net rental profit, and like other income, it’s added to your assessable income and taxed at your marginal rate. Cash flow positive property puts money in your pocket along the way, rather than relying on a future sale to deliver a return.

What is negatively geared property?

Negative gearing is the mirror image: the property’s holding costs, including interest on any loan used to buy it, exceed the rental income, and the result is a net rental loss. The ATO’s rental properties guide describes it directly: negative gearing “occurs when you buy a rental property with the assistance of borrowed funds and the rental income is less than the deductible expenses (including interest on the borrowings),” and “the tax result of negatively gearing a property is that a net rental loss arises.”

Under current law — as at July 2026, applying now, for the 2026-27 income year — that net rental loss can generally be claimed as a deduction against your other income, such as salary or business income, in the year it arises. Where your other income isn’t enough to absorb the loss, the ATO’s guidance is that you can carry the unused amount forward to a later income year. There’s no general dollar cap on this under current law, and no requirement that the loss only be used against rental income from that or any other property.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

How does this change from 1 July 2027?

As at July 2026, an enacted law change — the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received royal assent on 26 June 2026 and also updates capital gains tax rules as a separate mechanism within the same Act — narrows negative gearing for residential property from the 2027-28 income year. From that year, a residential rental deduction that exceeds residential rental income will generally be quarantined: it won’t be deductible against your other income, but it can still be used against residential capital gains or carried forward against future residential rental income.

	Current law (2026-27 income year)	From the 2027-28 income year
Residential rental loss exceeding rental income	Generally deductible against your other income (salary, business income) in the year it arises	Generally quarantined — not deductible against other income
What the quarantined amount can still be used against	N/A (no quarantine)	Residential capital gains, or carried forward against future residential rental income
Carry-forward if other income can’t absorb the loss	Yes, to a later income year	Same carry-forward mechanism continues, against future residential rental income
Dollar cap	None under current law	None described in the Act beyond the quarantine mechanism itself

A few things are already settled in the legislation, and one important boundary isn’t yet:

• Grandfathering. Interests acquired before 7:30pm AEST on 12 May 2026 — from the date the contract was entered into — keep the current treatment; the quarantine applies going forward from the change, not retrospectively to existing holdings.
• Some structures are exempt. Widely held unit trusts and complying superannuation funds sit outside the new quarantine.
• New residential dwellings are proposed to be exempt — but the boundary isn’t published yet. The legislation carves out new residential dwellings from the quarantine, but exactly what counts as a “new” dwelling for this purpose is left to a ministerial instrument that, as at July 2026, hasn’t been made. Until that instrument is registered, this guide can’t tell you where that line falls, and nobody should assume a particular property qualifies.

Which is better for my situation?

There’s no general answer, because the two structures trade off against different things:

• Cash flow. A cash flow positive property adds to your income now; a negatively geared property reduces it now (before any tax deduction) in exchange for a claimed loss.
• Reliance on growth. A negatively geared strategy generally depends more on the property’s value rising over time to justify carrying a loss along the way; a cash flow positive strategy is less dependent on that, because the property is already covering itself.
• Holding capacity. Carrying a rental loss year after year requires enough spare income (or savings) to absorb it — a genuinely personal question about your own budget, not a market one.
• Tax position. Whether a deduction is useful to you at all depends on your marginal tax rate and your other income in a given year — again, something only your own numbers can answer.

A registered tax agent can model both structures against your actual income and expenses; a licensed financial adviser can help weigh the strategy question alongside your broader goals. Neither structure is right or wrong on its own terms — the fit depends on you.

For how gearing decisions sit within the bigger picture of investing in property, see our guide to property investment in Australia.