Negative gearing means borrowing to buy a rental property where deductible expenses run higher than the rent it earns. The shortfall becomes a tax loss you can offset against your other income. For an Ettalong Beach investor, that mechanism sits behind every set of numbers on a rental property.
The sections below cover the concept, the deductions, and how the strategy applies in the Ettalong Beach market. Ettalong Beach units rose roughly 191 per cent over five years, climbing from a median of about $304,000 to $887,500, the strongest unit growth in the country over that stretch. Rents in the suburb have risen over the same period.
What Negative Gearing Actually Means
Gearing is simply borrowing money to invest. In property, it describes the relationship between what a rental property earns and what it costs to hold. When rent covers expenses and then some, the property is positively geared and you bank the difference. When rent and expenses roughly match, it is neutrally geared. When deductible expenses run ahead of rental income, it is negatively geared.
The ATO explains that a property is negatively geared when the rental return is less than the interest and other expenses, so the loss can reduce your other taxable income. CommBank describes the three states as sitting on a single spectrum, where the difference comes down to rent versus costs. The aim is rarely the annual loss on its own. Investors accept a modest shortfall now because they expect the tax benefit plus long-term capital growth to outweigh it over time.
How the Numbers Work
Start with the income side. A well-positioned Ettalong Beach unit rents for around $750 to $800 a week, as Domain reports. At $800 a week that is roughly $41,600 a year in gross rent.
The expense side. Borrow about $700,000 at around 6 per cent and interest alone is close to $42,000 a year. Add council rates, water, strata fees, property management, insurance, maintenance, and depreciation, and holding costs comfortably exceed the rent. This illustrative example reflects realistic Ettalong Beach figures and the deduction categories the ATO lists.
The net shortfall is deducted from your salary at your marginal tax rate, so a higher earner receives a larger offset. Some investors also run a cashflow-neutral position, where rent and out-of-pocket costs roughly cancel out, and depreciation tips the books into a paper loss. That non-cash deduction is covered below.
What You Can Claim
The range of claimable expenses is broad. The ATO’s rental expense guidance sets out the main categories: loan interest, council rates, water charges, strata or body corporate fees, property management fees, insurance, and depreciation. The ongoing holding costs are generally deductible, which reduces the real out-of-pocket cost of ownership.
Capital improvements, like a kitchen renovation, are not an immediate write-off. They are depreciated over time because they add value rather than simply restoring it. Keep the receipts and hand your accountant a clean set of numbers each year.
Depreciation: The Non-Cash Deduction
Depreciation costs nothing out of pocket, which is why it turns a mildly positive property into a paper loss. There are two streams. Division 43 capital works covers the building itself, claimed at 2.5 per cent a year over 40 years. Division 40 plant and equipment covers the removable items: ovens, air conditioning, carpet, blinds, and the like.
Because it is a non-cash deduction, depreciation reduces your taxable income without you writing a cheque. A quantity surveyor’s schedule unlocks it, and a depreciation schedule makes negative gearing work harder on newer properties. That matters in Ettalong Beach, where new apartments along The Esplanade and Ocean View Road are adding supply. Newer builds carry the largest depreciation deductions, because structure and fixtures both sit at the start of their claimable life. For an off-the-plan buyer here, depreciation can be the difference between a neutral position and a meaningful tax offset.
The Current Rules (2026)
The rules changed in 2026, and the position is worth knowing precisely. Under the May 2026 federal budget, negative gearing is set to be removed from 1 July 2027 for established residential properties contracted after 7:30pm on 12 May 2026 (William Buck; ABC News). Established properties purchased before that time remain grandfathered and can continue to be negatively geared.
The important exception sits on the new-build side. Eligible new builds remain exempt from the change, so investors can still negatively gear them and keep the 50 per cent capital gains tax discount. Losses on affected established properties can still be offset against other residential rental income and carried forward to future years.
The fundamentals still matter, just with a sharper eye on property type. Ettalong Beach has a deep new-build pipeline, which is exactly where the exemptions live. If you are buying established stock, the grandfathering rules define your position. Confirm your circumstances with a tax professional before you act.
Why Ettalong Beach Suits the Strategy
The strategy depends on the suburb it sits in, and Ettalong Beach offers both capital growth and rental demand. On growth, the median house sits around $1.26 million with 12.25 per cent annual growth, while unit values have climbed about 9.5 per cent a year over the longer term on a compound basis. The suburb’s ten-year growth is close to 78 per cent.
On the income side, rental demand has held up. House rents sit around $680 a week and unit rents around $590 a week, both rising roughly 8 per cent over the past year, and well-positioned units fetch $750 to $800. The gross rental yield sits around 2.5 per cent at the suburb level. About 13.6 per cent of dwellings were unoccupied on census night. That figure reflects a strong second-home and holiday market, and Domain reports a steady stream of weekend buyers.
Lifestyle supports tenant demand. The suburb is flat and easy to walk (Walk Score rates it 67) with a family-friendly beach, and the ferry to Palm Beach takes about 30 minutes. Commuters reach Sydney in just over an hour from nearby Woy Woy station. The buyer mix includes downsizers, weekenders, and remote workers, alongside a reported $200 million-plus investment in the town centre and new shop-top housing along Ocean View Road and The Esplanade (The Urban Developer).
Conclusion
Negative gearing is a tool, not a product. It works best when it is paired with a suburb that can deliver both capital growth and steady rental demand, and Ettalong Beach currently offers both. The five-year unit performance, rising rents, and steady supply of new waterfront apartments all support the case. To see how the strategy looks on your own numbers, speak with Stone Real Estate Ettalong Beach for local market guidance and sit down with a qualified accountant or tax adviser. A clear plan, matched to the right property, is the practical starting point.
Frequently Asked Questions
What is negative gearing in simple terms for an Ettalong Beach property?
It means borrowing to buy a rental property where deductible expenses run higher than the rent it earns. The shortfall becomes a loss that lowers your taxable income (ATO; CommBank).
How does negative gearing reduce my tax on an Ettalong Beach investment?
The net rental loss is offset against your salary or wages at your marginal tax rate, which reduces the tax you pay for the year. The size of the benefit depends on your income and circumstances (Treasury).
What expenses can I claim on a negatively geared Ettalong Beach property?
Loan interest, council rates, water, strata fees, property management, insurance, and depreciation. The ATO’s list covers the full set of deductible holding costs.
What is the difference between positive, neutral and negative gearing for Ettalong Beach buyers?
Positive means rent beats expenses, neutral means they roughly match, and negative means expenses run ahead of rent. A unit renting at $800 a week with higher holding costs is negatively geared.
How does depreciation work on an Ettalong Beach apartment, and do I need a schedule?
Depreciation splits into capital works on the building and plant and equipment such as appliances and carpet. A quantity surveyor’s schedule unlocks the non-cash deduction, and it is most valuable on newer apartments (Washington Brown).
Do new apartments in Ettalong Beach still qualify for negative gearing in 2026?
Yes. Eligible new builds remain exempt from the 2026 changes and keep the 50 per cent capital gains tax discount (ABC News), so off-the-plan stock along The Esplanade and Ocean View Road fits the current rules.
Are established Ettalong Beach properties grandfathered under the 2026 changes?
Properties contracted before 7:30pm on 12 May 2026 remain grandfathered and can continue to be negatively geared (William Buck).
What rental return can I expect from an Ettalong Beach property?
Houses rent around $680 a week and units around $590 a week, with well-positioned units at $750 to $800 (OpenAgent; Domain). Rents have been rising about 8 per cent a year.
Can I still use rental losses in Ettalong Beach if I buy after the 2026 budget?
Yes. Losses on affected properties can still offset other residential rental income and be carried forward to future years (The Guardian).
Is negative gearing right for every Ettalong Beach investor?
It suits investors with taxable income and a long-term growth focus. Cashflow and personal goals matter, so tailor the approach to your own numbers.
Should I get professional help with negative gearing an Ettalong Beach property?
A qualified accountant or tax adviser should confirm your position, and a quantity surveyor prepares the depreciation schedule. Stone Real Estate Ettalong Beach can guide the local market side.
How does negative gearing interact with capital gains when I sell an Ettalong Beach property?
The strategy pairs annual tax offsets with long-term capital growth. Capital gains tax applies on sale. Under the May 2026 budget, the 50 per cent discount is replaced by cost-base indexation for established residential properties acquired after budget night, from 1 July 2027, while eligible new builds retain the 50 per cent discount (The Guardian; William Buck).