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Global negative gearing comparison

Opinion piece

Global negative gearing comparison

Opinion piece
It has been stated that Australia is the only country that allows for negative gearing deductions, although this is not the case. There are plenty of other countries that allow negative gearing deductions. Here is how it works around the globe.

An asset is negatively geared when interest payments on borrowings used to finance the asset exceed the income it generates. "Negative gearing" means that these losses can then be used to offset other forms of income such as wages. Although it is most commonly used in the property market, negative gearing can apply to any form of asset. 

Australia is not the only country to allow negative gearing. Germany, Japan, Canada and Norway all have very similar systems to ours, with rental losses able to offset total income tax payable and unused losses able to be carried forward to offset future tax liabilities.

Other countries have similar systems, albeit slightly less generous, where rental losses can generally be used to offset future rental income but not other forms of income (e.g. wages income). Some countries do not allow negative gearing but nevertheless have some allowance for rental expenses to reduce overall tax liability.   

Negative gearing needs to be considered in the context of the broader tax system, especially personal income tax and capital gains tax.

It is not accurate to focus on only one aspect of our tax system without considering the whole system. For example, relative to other OECD economies, Australia has a high marginal tax rate which kicks in at a low-income threshold. When considering the tax system in aggregate, Australia is one of the most heavily taxed countries in the OECD.

In summary:

Negative gearing (where rental losses can be used to reduce tax on other forms of income) is not unique to Australia. Germany, Japan, Canada and Norway all have very similar systems to ours.

A number of other countries have limited versions of negative gearing, generally with restrictions on deductibility of rental income and limitations on the extent to which losses can offset future income. 

Negative gearing has to be viewed in the context of the broader tax system, especially personal income tax and capital gains tax.

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Negative gearing global comparison

Country Deductible expenses Loss deductibility Restrictions Negative gearing coverage
Germany Yes - everything Other income
  • Losses can be carried backwards (by one year) or forwards
Full negative gearing
Australia Yes - everything Other income
  • No deductions for vacant land
  • Can't carry losses backwards
Full negative gearing
Japan Yes - everything Other income
  • Interest for land ownership can't offset other non-rental income
Full negative gearing
Canada Yes - everything Other income
  • Requires a reasonable expectation of profit
  • Losses can't be created from depreciation deduction
Full negative gearing
Norway Yes - everything except capital improvement Other income
  • Rented for >30 days
  • Capital improvements not deductible
Full negative gearing
France Yes Other income
  • If unfurnished, rent must exceed €15,000 (if <€15,000 income is reduced by 30% with no other deductions. If furnished: rent must exceed €70,000)
  • Losses deductible up to €10,700/yr on other income, but only from non-interest expenses
Partial negative gearing
United States Yes Other property
  • Rental losses can only be deducted against only other 'passive' income (i.e. other rental income).
  • Capital expenses (improvements) can be deducted
Partial negative gearing
Ireland Yes Other property
  • Losses only deductible against current/future rental income
  • Capital expenses not deductible
Partial negative gearing
Finland Yes Other capital gains
  • Rental properties are considered the same as other capital assets. Losses only deductible against other capital gains
  • Losses can't be carried forward. Instead overall income tax is reduced by 30%, capped at a total deduction of €1,400
Partial negative gearing
Spain Yes No
  • Only able to reduce profit by 60%
  • Expenses > 60% of income are deductible in the following four tax years
No negative gearing but some deductibility of rental expenses
Sweden No No
  • Flat 40,000 deduction, plus 20% of remaining income if the original deduction didn’t bring it down to 0.
  • Deductions can’t exceed income (can’t create a loss)
No negative gearing but some deductibility of rental expenses

For a more comprehensive look at international comparisons and property tax, please refer to these reports: