Update: Australian tax law has changed (last reviewed 5 September 2026)
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, passed 26 June 2026, changes how negative gearing and capital gains tax apply to Australian residential property from 1 July 2027. In summary: negative gearing will be limited to newly built properties (properties held at 7:30pm AEST 12 May 2026 are grandfathered), and the 50% CGT discount is replaced by cost base indexation with a 30% minimum tax rate on capital gains.
Parts of this article may not yet reflect those changes. Please confirm the current rules on the ATO website and speak to a registered tax agent before acting. This site provides general information only.
Cash flow is the difference between what a rental property earns and what it costs to own it — before and after tax. Most investors start with gross yield (annual rent ÷ purchase price) and stop there, which produces a figure that bears little resemblance to the actual money flowing in and out of their bank account each month. A property with a 7% gross yield can be cash flow negative by $500/month once all real costs are accounted for. A property with a 5.5% gross yield and a low interest rate mortgage might be cash flow positive by $200/month. The difference is in the detail — and this guide walks through every line item.
Full Cash Flow Model — Example Property
After-Tax Cash Flow: What You Actually Pay Each Week
The pre-tax cash flow figure — the raw surplus or deficit before considering tax deductions — is the money leaving your bank account. But Australian tax law allows you to deduct rental property losses (negative gearing) against your other income, typically your salary. At a 37% marginal tax rate, a $9,788 pre-tax loss generates approximately $3,621 in additional tax refund at year end (or reduced PAYG withholding if you lodge a withholding variation form with the ATO). The after-tax cash cost falls to approximately $6,167 per year, or $118 per week. This is the real out-of-pocket cost of the investment. Always calculate the after-tax figure, not just the pre-tax figure. And always stress-test the model at interest rates 2–3% higher than current, because rate rises directly increase the pre-tax loss and the after-tax cash cost.
A property’s real cash position is only visible when every cost is on the table. Building a full cash flow model before you buy — not after — is the single most important analytical step that separates disciplined investors from those who get surprised by their quarterly statements.
One Property at a time
Brick by Brick 🧱
General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.
