Positive gearing of a property investment occurs when the income exceeds the expenses.
For most property investors, by far the largest investment property expense is interest on the loan that was drawn down to buy the property.
As your annual outgoings to maintain the investment property exceed the rental income you derive from it, you will be making a net loss, which is numerically expressed as a negative figure.
In particular, the loss may be further amplified by depreciation and capital works deductions, which are not cash outgoings but are nonetheless tax deductible.
What makes negative gearing particularly tax attractive is that the net loss can be offset against other income that would otherwise be included in your assessable income. Therefore, if a dollar of income would otherwise be taxed at 51.5%, every dollar of negative gearing loss which offsets that income will save you 51.5 cents!
Meanwhile, if the investment property goes up in value but you do not sell the property, no CGT will be payable. Even if you do sell the property after 12 months, the capital gain will be discounted by 50%.
Accordingly, provided that the total after-tax capital gain on your property and the total tax you have saved from negative gearing exceed your total rental losses during your ownership of the property, you will be in front and make an overall net profit from the property.
Having said that, negative gearing is a hotly debated topic in the public space at the moment. In particular, the opponents to negative gearing argue that negative gearing encourages property investment by providing significant tax perks that drive up housing prices, which is increasingly making home ownership inaccessible especially to first home buyers.