The same strategy. Very different outcomes.
Negative gearing is one of the most widely used property strategies in Australia. Most people understand the basics: you buy a rental property, costs exceed the rent, and the loss reduces your personal tax bill. However, most investors do not realize how differently the same strategy behaves inside a Self-Managed Super Fund.
| Same property can produce very different after-tax outcomes depending on whether you hold it personally or inside an SMSF. Outside super, negative gearing primarily delivers early tax relief. Inside an SMSF, however, investors usually see less benefit upfront, but the long-term outcome can be more powerful over time. |
How negative gearing works outside super
Outside super, you borrow to purchase a rental property, interest and outgoings exceed rental income, and the shortfall creates a taxable loss deductible against salary or other income — often at a marginal rate of up to 47 percent including Medicare levy.
The trade-off is clear: when you sell the property, you still pay capital gains tax, and you still pay tax on rental income in retirement at your marginal rate. Over time, large part of the early benefit is often clawed back later.
How negative gearing works differently inside an SMSF
Step 1: The SMSF acquires the property
Using a Limited Recourse Borrowing Arrangement (LRBA) under section 67A of the SIS Act. The LRBA limits the loan to the specific asset, protecting other SMSF assets.
For a detailed explanation of how LRBAs work, read our SMSF property and borrowing FAQ.
Step 2: Losses occur inside the fund
Inside an SMSF, however, the loss offsets concessional contributions taxed at 15 percent instead of reducing your personal taxable income. As a result, your income outside super stays unchanged.
Step 3: The long-term tax outcome changes
Once the member moves into pension phase, the strategy changes significantly. The fund can receive rental income tax free and sell the property tax free subject to the Transfer Balance Cap. As a result, the strategy moves from tax deferral to tax elimination.
A practical comparison
A 40-year-old acquires a property worth $500,000 and holds it until age 65. By that point, the property has grown to $1.2 million — a capital gain of $700,000.
| Feature | Outside Super | Inside an SMSF |
|---|---|---|
| Where loss is applied | Offset against personal income (up to 47% rate) | Offset against concessional contributions (15% rate) |
| Impact on personal cash flow | Relies on annual tax refund | Personal income unaffected |
| Capital gains tax on $700k gain | Discounted but still taxable | Nil in pension phase |
| Tax on rental income in retirement | Taxed at marginal rate | Nil in pension phase |
| Overall long-term tax outcome | Significantly higher tax paid | Significant long-term tax savings |
| Complexity level | Lower | Higher (LRBA, compliance required) |
| Best suited to | Shorter-term tax relief | Long-term, retirement-focused strategy |
What this strategy is — and what it is not
In practice, negative gearing inside an SMSF is designed for long-term holding, works best when assets are retained into pension phase, and rewards planning and patience. It is not a short-term cash flow strategy, not suitable for every investor or every SMSF, and investors should not implement this strategy without proper structuring advice
The figures above are illustrative only and assume a Transfer Balance Cap of $2.0 million for the 2025-26 year.
Frequently asked questions
Is negative gearing better inside or outside super?
Over a full working life and into retirement, the outcome can be very different. Outside super, negative gearing primarily delivers early tax relief. Inside an SMSF in pension phase, it can be significantly more powerful over time.
Can an SMSF borrow to buy a negatively geared property?
Yes. However, the SMSF must use a Limited Recourse Borrowing Arrangement. The LRBA limits the loan to the specific property, which helps protect the fund’s other assets.
Strict compliance requirements apply.
What tax advantages does an SMSF have in pension phase?
In pension phase, rental income and capital gains on assets held in the fund are generally tax free, subject to the Transfer Balance Cap.
This article contains general information only. SMSF borrowing and property strategies involve risk and complexity and require specialist advice tailored to your circumstances.
Speak to the creditte SMSF team about whether this strategy suits your situation and how to structure it correctly.
If this is relevant to your situation, book a discovery call it is 15 minutes and free.
