What not to do with Positive Gearing on Investment Loans

What Positive Gearing Means for Your Investment Loan

Positive gearing happens when your rental income exceeds all the costs of holding the property, including your loan repayments, rates, insurance, and maintenance.

Unlike negative gearing, where you claim a tax deduction for the shortfall against your salary, positive gearing means you're making a profit each week or month. That profit is added to your taxable income, which means you'll pay tax on it at your marginal rate. Many Queensland investors focus exclusively on negative gearing without realising that a positively geared property can still deliver strong long-term returns, especially when you factor in capital growth and the cashflow buffer it provides.

Consider a property in Springfield Lakes purchased with a 20% deposit. If weekly rent is $580 and the investor's loan repayment is $450 per week, with rates, insurance, and body corporate fees totalling another $90 per week, the property generates $40 per week in surplus. That's roughly $2,000 a year in positive cashflow before tax. The investor pays tax on that $2,000, but they're not subsidising the property from their salary every fortnight.

How Loan Structure Affects Positive Cashflow

Your loan structure directly determines whether your property stays positively geared. Interest-only repayments keep your weekly cost lower, which can be the difference between surplus and shortfall.

On a property loan where the borrowed amount is high relative to the purchase price, switching from interest-only to principal and interest repayments can add $100 or more per week to your outgoings. That often tips a positively geared property into negative territory. If your goal is to maintain positive cashflow, an interest-only period gives you breathing room, especially in the early years when rent may not have grown much yet.

In our experience, investors who plan to hold multiple properties often keep their first property on interest-only longer than they originally intended, because it frees up serviceability for the next purchase. The tradeoff is that you're not reducing the loan balance, but if your focus is on expanding your property portfolio rather than paying down debt quickly, that structure makes sense.

Why Variable Rates Suit Most Positively Geared Properties

Variable rates give you flexibility to make extra repayments or access an offset account, both of which are useful when you're generating surplus income.

With a fixed rate, you're locked into a set repayment for the term, and most fixed loans don't allow you to deposit surplus rent into an offset or make significant extra repayments without penalty. If your property is positively geared, that surplus is sitting in your transaction account earning minimal interest while you're still paying the full rate on your loan balance. A variable rate with an offset means every dollar of surplus rent reduces the interest you're charged daily.

Fixed rates can still work if you're concerned about rate rises eroding your positive cashflow, but you lose the ability to adapt as your circumstances change. If rent increases or your income drops, a variable loan lets you adjust without break costs or restrictions.

The Tax Treatment That Catches New Investors

Positive gearing means you're taxed on the surplus, but you can still claim every deductible expense to reduce that profit.

Many new investors assume that because they're positively geared, they can't claim deductions. That's not correct. Loan interest, property management fees, council rates, insurance, repairs, and depreciation are all claimable, just as they are for a negatively geared property. The difference is that these deductions reduce your taxable profit rather than creating a loss you can offset against other income.

As an example, if your property generates $5,000 in surplus rent over the year, but you have $3,000 in claimable expenses including loan interest, you're only taxed on the $2,000 net profit. If you're on a marginal tax rate of 34.5%, that's $690 in tax, not $1,725. The misconception that positive gearing removes your ability to claim costs leads some investors to avoid properties that would otherwise perform well.

How the 2026 Budget Changes Affect Positively Geared Properties

If you purchased an established investment property after 12 May 2026, the negative gearing rules change from 1 July 2027, but positive gearing is unaffected.

Under the new rules, losses on established residential properties bought after Budget night can only be offset against rental income or capital gains from residential property. If your property is positively geared, you're not making a loss, so the restriction doesn't apply to you. Your surplus is still added to your taxable income, and your deductions still reduce that surplus in the usual way.

This makes positive gearing more attractive than it was previously, especially for investors who don't have other residential property income to offset losses against. The capital gains tax changes also matter: from 1 July 2027, the 50% CGT discount is replaced with indexation and a minimum 30% tax on gains for established properties. New builds retain the choice between the old and new arrangements, which is why many investors are now considering new construction in precincts like Ripley or Deebing Heights.

When Positive Gearing Limits Your Borrowing Capacity

Lenders assess your rental income at 80% of the actual amount to account for vacancy and maintenance, which can reduce your borrowing capacity even if the property is positively geared.

If your property generates $30,000 in rent annually, the lender will only recognise $24,000 when calculating your serviceability. At the same time, they'll assess your loan repayment at a higher interest rate than you're actually paying, often adding a buffer of 3%. This means a positively geared property on paper can still appear neutral or slightly negative in the lender's assessment.

When you're applying for a second investment loan, this can limit how much you can borrow, even though the first property is covering its own costs. Some lenders are more flexible with how they treat rental income, which is where working with a broker who understands investor lending helps. We regularly see clients who were declined by one lender get approved by another purely because of how rental income was treated in the serviceability calculation.

The Cashflow Advantage When Rates or Vacancies Change

A positively geared property gives you a buffer when rates rise or the property sits vacant for a few weeks.

If your property is breaking even or slightly negative, a rate rise of 0.5% might add $50 per week to your repayment, which you now need to cover from your own income. If the property is already generating $40 per week in surplus, that same rate rise reduces your surplus to zero, but you're not out of pocket. The same applies to vacancy: if the property sits empty for four weeks, you lose $2,320 in rent, but you're not scrambling to find that amount from your salary.

This cashflow buffer is particularly relevant in Queensland, where vacancy rates in some outer suburbs have increased over the past year as new supply comes online. Positive gearing doesn't eliminate risk, but it reduces the financial pressure when things don't go to plan.

If you're considering an investment property and want to understand how positive gearing fits your situation, call one of our team or book an appointment at a time that works for you. We'll walk through the numbers and loan options without assuming you already know how it all works.

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