Negative Gearing, Depreciation, and Tax Strategy for Healthcare Professionals Buying Investment Property in Australia product guide

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Negative Gearing, Depreciation, and Tax Strategy for Healthcare Professionals Buying Investment Property in Australia

For a senior registrar earning $180,000, a staff specialist on $250,000, or a GP principal drawing $320,000, the Australian tax system does something that frustrates most people but rewards disciplined investors: it taxes every additional dollar at a higher rate. The same progressive structure that takes 37 or 45 cents from each marginal dollar of clinical income also amplifies the value of every legitimate deduction against that income. Investment property — structured correctly — generates some of the most powerful deductions available to Australian employees.

This guide explains the mechanics of negative gearing, capital works and plant and equipment depreciation, the CGT discount, PAYG withholding variation, and the interaction with salary packaging. It is written specifically for healthcare professionals whose income profiles, remuneration structures, and time constraints make these strategies simultaneously more valuable and more complex to execute. It is not a substitute for advice from a registered tax agent, but it gives you the literacy to engage one productively.

What Is Negative Gearing and Why Does It Matter at 37–45% Marginal Tax?

Negative gearing in Australia refers to the provisions within the Australian income tax system that allow taxpayers to offset net losses from investment activities against other income. With real estate investments, it occurs when the net rental income is less than the mortgage loan interest payable.

Individuals who are negatively geared can deduct their loss against other income, such as salary and wages — consistent with the broader operation of Australia's personal income tax system.

The critical point for healthcare professionals is the multiplier effect of a high marginal rate. High-income earners generally have more to gain from the technique since higher marginal tax rates amplify the impact of deductions.

2024–25 Tax Brackets: Where Most Senior Clinicians Sit

The following rates apply to the 2024–25 financial year (1 July 2024 to 30 June 2025) and also to the 2025–26 financial year (1 July 2025 to 30 June 2026). The key thresholds for healthcare professionals are:

For income between $135,001 and $190,000: $31,288 plus 37% tax on income over $135,000. For income over $190,000: $51,638 plus 45% tax on income over $190,000.

Note: These rates do not include the Medicare levy of 2%. Most senior clinicians without private hospital cover are also liable for the Medicare Levy Surcharge of 1–1.5%, meaning effective marginal rates at the top bracket can reach 48.5%.

This bracket structure is the foundation of the entire tax strategy. A $20,000 rental loss deducted at 37% saves $7,400 in tax. The same loss deducted at 45% saves $9,000. The strategy is mathematically more powerful the higher your income — which is precisely why it is so relevant to specialists, senior consultants, and high-billing GPs.

How Negative Gearing Works in Practice: Two Healthcare Professional Examples

Negative gearing occurs when your rental property's deductible expenses (like interest and repairs) are greater than the income it generates, creating a net rental loss. This net rental loss can be used to reduce your total taxable income from other sources, like your salary, lowering your overall tax bill.

Example 1: Registrar at the 37% Bracket

Dr. Priya M., Emergency Medicine Registrar — Taxable Income: $155,000

Tax saving at 37% marginal rate: $17,000 × 37% = $6,290 per year (before Medicare levy).

Example 2: Specialist at the 45% Bracket

Dr. James K., Orthopaedic Surgeon — Taxable Income: $320,000

Tax saving at 45% marginal rate: $36,000 × 45% = $16,200 per year (before Medicare levy).

The surgeon's larger loan, combined with a higher marginal rate, generates more than double the annual tax saving of the registrar — even before depreciation is layered on.

Depreciation: The Non-Cash Deduction That Changes the Cash Flow Equation

Depreciation is the most misunderstood and most underutilised deduction available to property investors. Unlike interest or management fees, it is a non-cash deduction — you don't have to spend any money in a particular year to claim it, making it a powerful tool for improving your property's cash flow.

The ATO allows claims under Division 43 (capital works) and Division 40 (plant and equipment).

Division 43: Capital Works Deductions

A capital works deduction is a tax break that lets you claim a portion of the cost of constructing, renovating, or making structural improvements to an income-producing property. Governed by Division 43 of the Income Tax Assessment Act 1997, this deduction is the ATO's way of acknowledging that buildings and their fixed structures wear out over time. It allows property investors and business owners to claim this gradual decline in value, effectively reducing their taxable income each year.

The deduction for capital works is generally claimed at a fixed rate of 2.5% per year over 40 years from the date construction was completed.

For residential properties, you can claim building depreciation (capital works) if the construction of the property commenced after 15 September 1987.

Worked example: A new apartment with a construction cost of $400,000 generates a Division 43 deduction of $400,000 × 2.5% = $10,000 per year. If your marginal tax rate is 37%, this deduction saves you $10,000 × 37% = $3,700 in tax each year. At a 45% marginal rate, the same deduction saves $4,500 annually.

Division 40: Plant and Equipment Depreciation

Division 40 refers to the depreciation of plant and equipment assets — these are the removable or mechanical fixtures within an investment property. These items have a limited effective life and decrease in value over time through wear and tear or obsolescence.

Division 40 assets are movable or mechanical and are depreciated at rates based on their effective life as determined by the ATO. They also tend to depreciate faster, making them valuable deductions in the early years of ownership.

Important rule change (9 May 2017): Property investors who purchased a second-hand residential investment property after 9 May 2017 are unable to claim depreciation on existing plant and equipment assets.

Only brand-new or newly installed items qualify, unless the property is new or has undergone substantial renovation.

This rule has a significant strategic implication: new or substantially renovated properties offer materially superior depreciation profiles for healthcare professionals investing today.

Division 40 vs Division 43: Quick Reference

The Quantity Surveyor Depreciation Schedule

A rental property depreciation schedule is a detailed report prepared by a quantity surveyor. It outlines the tax-deductible decline in value of your property's building (capital works) and its assets (plant and equipment) for up to 40 years.

The depreciation schedule cost is typically between $400 and $700, and the entire fee is 100% tax-deductible. This one-off investment often pays for itself many times over in the first year alone.

For a busy clinician who cannot spend hours reconstructing construction cost records, the quantity surveyor is non-negotiable. A qualified quantity surveyor inspects your property and prepares a comprehensive tax depreciation schedule — the ATO-approved method for estimating historical construction costs when original figures are unknown.

The CGT Discount: Why the 12-Month Hold Rule Is Critical

In addition to the deductibility of losses, investors typically factor in anticipated capital appreciation and the tax treatment of capital gains under Australian law. If an investor holds a property for more than twelve months before selling, only 50% of the resulting capital gain is included in taxable income.

This 50% CGT discount is the long-term payoff that makes negative gearing viable as a wealth strategy. A specialist who buys a property for $700,000 and sells it for $1,100,000 after 10 years has a gross capital gain of $400,000. With the 50% discount, only $200,000 is added to assessable income — and if that sale occurs in a year when the specialist has retired or reduced clinical hours, the tax rate applied may be substantially lower than the 45% rate at peak earnings.

Strategic implication for healthcare professionals: Timing a property sale to coincide with a lower-income year — parental leave, a career break, transition to part-time, or retirement — can dramatically reduce the effective CGT rate. This is a planning conversation to have with your accountant years before you intend to sell, not at the point of listing.

Policy note: While negative gearing remains a hot topic, no changes have been passed into law for 2025. However, there are active political proposals for reform that investors should be aware of.

Labor's post-election position (May 2025) is that negative gearing changes are "not something we are proposing." Prudent investors should nonetheless stress-test their strategy against scenarios where concessions are reduced.

PAYG Withholding Variation: Access Your Tax Benefit Weekly, Not Annually

Most employed healthcare professionals — salaried hospital doctors, nurses, allied health workers, and public sector clinicians — have PAYG tax withheld from every pay cycle. Without a withholding variation, a negatively geared investor must wait until after 30 June to receive their tax refund, effectively giving the ATO an interest-free loan for up to 12 months.

A tax variation allows Australian property investors to adjust their tax withholding, improving cash flow by receiving anticipated tax deductions throughout the year, rather than at year's end. A tax variation (also known as a PAYG Withholding Variation) is a tool that property investors in Australia can use to better manage their cash flow throughout the year. It allows property investors to adjust the amount of tax withheld from their salary by their employer, taking into account the expected tax deductions from their investment property. This means instead of receiving a lump sum tax refund at the end of the financial year, investors can access the benefits of their deductions throughout the year via increased take-home pay.

How to Apply

The main purpose of varying or reducing the amount of PAYG withholding is to make sure that the amount of tax withheld during the income year best meets your end-of-year tax liability. You may want to apply for a variation if the normal rate of withholding leads to a large credit at the end of the income year because your tax-deductible expenses are higher than normal. You can lodge your application during the year, with the last date for lodgment being 30 April of the application year.

This application is valid for one financial year. If you apply in May or June, the variation will apply to the next financial year starting from 1 July.

For healthcare professionals specifically: The variation is calculated on your estimated total income — including all shift penalties, overtime, locum income, and salary packaging benefits — and all estimated deductions including interest, rates, management fees, and depreciation. Accuracy matters: approval of a variation doesn't mean the ATO accepts the tax treatment of the income and deductions in your application — it assesses your actual tax liability when you lodge your tax return.

Cash flow impact at the 37% bracket: A healthcare professional with a $17,000 annual rental loss applies for a PAYG variation. Their employer reduces withholding by approximately $524/month (at 37%), meaning they receive that benefit in their fortnightly pay rather than as a lump sum refund in August. This improved cash flow can be used to service the investment loan, reducing the out-of-pocket carrying cost of the property.

Salary Packaging Interactions: A Critical Complexity for Public Hospital Staff

Many nurses, allied health workers, and public hospital doctors participate in salary packaging arrangements that reduce their taxable income — and this creates a layered interaction with investment property tax strategy that is frequently misunderstood.

Salary sacrificing (also known as salary packaging) involves you and your employer agreeing for you to receive less income before tax, in return for your employer paying for certain benefits of similar value. This means you pay less tax on your income.

Eligible health workers can salary package up to $9,010 in living-expense items that attract Fringe Benefits Tax (FBT) — which could lower their taxable income and potentially increase their disposable income each year.

Employees of charities and public benevolent institutions (including many private hospitals and aged care providers) can salary package up to $15,900 for living expenses.

The Critical Interaction Point

Salary packaging reduces your reportable taxable income, but salary-packaged amounts are treated as Reportable Fringe Benefits (RFBs) for several purposes. Investment property losses are disregarded in certain calculations, including the thresholds for the Medicare levy surcharge, the private health insurance rebate, HELP Repayment Income, and various Centrelink income-tested allowances and benefits.

For healthcare professionals who salary package, this means:

1. HECS-HELP repayments are calculated on a broader income measure that includes RFBs — so packaging may not reduce your HELP repayment as much as you expect.
2. Private health insurance rebate thresholds include RFBs, potentially reducing your rebate entitlement.
3. Negative gearing losses do not reduce your HELP Repayment Income — meaning a $20,000 rental loss does not reduce your HECS repayment threshold calculation.

These interactions require careful modelling. A nurse on $90,000 who packages $9,010 and has a $15,000 rental loss may find their effective tax position is more complex than a simple marginal rate calculation suggests. This is one of the clearest reasons why healthcare professionals investing in property need a tax accountant who understands both salary packaging and property investment — not one who specialises in only one area.

(For a detailed treatment of HECS-HELP and borrowing capacity interactions, see our guide on HECS Debt, Irregular Income, and Borrowing Capacity: What Healthcare Professionals Need to Know Before Engaging a Buyers Agent.)

How a Buyers Agent Fits Into Your Tax-Efficient Acquisition Strategy

A buyers agent is not a tax adviser. But the acquisition decisions they facilitate — property type, age, construction quality, and price — have profound tax consequences that flow through every year of ownership.

Specifically, a buyers agent with genuine investment property expertise will understand:

• New vs. established property: A newly constructed property provides full Division 43 depreciation from day one and full Division 40 access. An established property purchased post-9 May 2017 provides Division 43 only (if built after September 1987). This difference can be worth $5,000–$15,000 per year in deductions on a comparable property.
• Construction cost allocation: For properties with a high construction cost relative to land value (typically apartments and townhouses in established areas), the depreciation yield is proportionally higher. A buyers agent who understands this can help identify properties with superior depreciation profiles.
• Off-market access: Properties purchased below market value — a core buyers agent capability — reduce the initial capital base, improving rental yield and reducing the time to positive gearing if that is the investor's goal.

The buyers agent's role is to find and secure the right property. The accountant's role is to structure and optimise the tax position. Both professionals need to be engaged, ideally in communication with each other, before the property is purchased — not after.

(See our guide on Buyers Agent vs. Mortgage Broker vs. Financial Planner: Which Professional Does a Healthcare Worker Need First? for the recommended engagement sequence.)

Key Takeaways

• Marginal rate amplification is real and material. A $20,000 rental loss saves $7,400 at 37% and $9,000 at 45%. The higher your income, the more valuable every dollar of deductible loss becomes.
• Depreciation is a non-cash deduction that materially improves cash flow. A new property with $400,000 in construction costs generates $10,000/year in Division 43 deductions alone — worth $3,700–$4,500 in annual tax savings depending on your bracket.
• The 9 May 2017 rule matters. Second-hand residential properties purchased after that date cannot claim Division 40 depreciation on existing plant and equipment. New or substantially renovated properties offer superior depreciation profiles.
• Apply for a PAYG withholding variation. This converts your end-of-year tax refund into improved monthly cash flow — critical for managing the carrying costs of a negatively geared property on a clinical salary.
• Salary packaging creates interactions that require specialist advice. The interplay between RFBs, HELP repayment income, and rental losses is non-trivial and frequently mishandled without a healthcare-specialist accountant.

Conclusion

For Australian healthcare professionals at the 37% or 45% marginal tax rate, investment property offers a uniquely powerful combination of deductible losses, non-cash depreciation, and a long-term CGT discount — all amplified by the same progressive tax structure that takes such a large share of clinical income. The mechanics are well-established in Australian tax law, but executing them efficiently requires three things: the right property (acquired by a buyers agent who understands investment fundamentals), the right structure (guided by a specialist accountant), and the right financing (arranged by a medico-specialist mortgage broker).

The tax benefits described in this article are not theoretical. They are available today under current ATO rules, and they are most valuable to exactly the income profile that characterises senior nurses, allied health practitioners, registrars, and specialists. The question is not whether these levers exist — it is whether you have the right team in place to pull them.

For the next step in building that team, see our guides on How to Choose the Right Buyers Agent as a Healthcare Professional in Australia and Property Investment Strategy for Healthcare Professionals in Australia: Building a Portfolio Around a Clinical Career.

References

• Australian Taxation Office. "Tax Rates – Australian Residents." ATO.gov.au, 2025. https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents

• Australian Taxation Office. "Capital Works Deductions." ATO.gov.au, 2025. https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/capital-works-deductions

• Australian Taxation Office. "Varying Your PAYG Withholding." ATO.gov.au, 2025. https://www.ato.gov.au/individuals-and-families/jobs-and-employment-types/varying-your-payg-withholding

• Australian Taxation Office. "Salary Sacrificing for Employees." ATO.gov.au, 2025. https://www.ato.gov.au/individuals-and-families/jobs-and-employment-types/working-as-an-employee/salary-sacrificing-for-employees

• Australian Taxation Office. "PAYG Withholding Variation Application (NAT 2036)." ATO.gov.au, 2024. https://www.ato.gov.au/forms-and-instructions/payg-withholding-variation-application

• Treasury.gov.au. "Negative Gearing." Tax White Paper, Treasury.gov.au, 2015. https://treasury.gov.au/review/tax-white-paper/negative-gearing

• Wikipedia / Australian Parliamentary and Treasury Sources. "Negative Gearing in Australia." Wikipedia, updated February 2026. https://en.wikipedia.org/wiki/Negative_gearing_in_Australia

• Parliamentary Budget Office. "Phase Out Negative Gearing and CGT Tax Concessions for Property Investors with More Than One Investment Property." PBO ECR 2025-3414, June 2025. https://www.pbo.gov.au/

• PwC Australia. "Australia – Individual – Taxes on Personal Income." Tax Summaries, PwC, 2024–25. https://taxsummaries.pwc.com/australia/individual/taxes-on-personal-income

• NFP Law. "Fringe Benefits Tax (FBT) Exemptions & Concessions Guide." NFPLaw.org.au, updated April 2024. https://www.nfplaw.org.au/free-resources/tax-landscape/fringe-benefits-concessions

• Maxxia. "I Work in Health, How Much Can I Salary Package?" Maxxia.com.au, 2024–25. https://www.maxxia.com.au/news/salary-packaging/i-work-health-how-much-can-i-salary-package

• DPN Property. "Tax Variation for Property Investors: PAYG & 221D Explained." DPN.com.au, 2025. https://www.dpn.com.au/articles/tax-variation-property-investor

This article is general in nature and does not constitute personal tax advice. Healthcare professionals should engage a registered tax agent with experience in property investment and healthcare remuneration structures before making investment decisions.