Positive gearing is the opposite of negative gearing. It means your rental property earns more in rent than it costs to own. After paying the mortgage interest, insurance, management fees, rates, and all other expenses, you still have money left over. That leftover amount is profit, and you pay tax on it.
A positively geared property puts cash in your pocket each week or month. It is the simpler end of property investing: your tenant is effectively covering all your costs and then some.
How It Works in Practice
Suppose your property brings in $30,000 a year in rent, and your total annual costs (interest, rates, insurance, management, maintenance, and depreciation) add up to $22,000. You have a net profit of $8,000. That $8,000 gets added to your taxable income for the year and taxed at your marginal rate.
If your marginal tax rate is 32.5%, you would pay $2,600 in additional tax on that rental profit, leaving you $5,400 ahead.
When Properties Become Positively Geared
Many investment properties start out negatively geared and become positively geared over time as rents increase while the mortgage balance (and therefore the interest costs) decreases. Properties in higher-yield regional areas or those purchased with a large deposit may be positively geared from day one.
Why It Matters for Landlords
A positively geared property provides reliable cash flow, which can help you service other loans or build savings toward your next investment. The trade-off is that you pay more tax in the short term compared to a negatively geared property, because you are earning a profit rather than claiming a loss.
Even with a positively geared property, it is still important to claim every legitimate deduction. Depreciation, repairs, and management fees all reduce the amount of tax you owe on that profit. propkt helps you track all income and expenses so you know your exact position at any point in the financial year. For a fuller discussion, read our guide on negative gearing explained.