In short

Negative gearing losses reduce your taxable income for ATO purposes, but several government tests add them back. The total net investment loss (TNIL) — rental property losses plus financial investment losses — is added back for the CSHC income test, Medicare levy surcharge, private health insurance rebate, and SAPTO. The Age Pension income test works differently and does not add back TNIL.

"My taxable income is $82,000 — I'm well under the CSHC threshold."

Maybe. But if you're negatively geared on an investment property and carrying $25,000 in rental losses, the income figure that actually matters for your Commonwealth Seniors Health Card eligibility is $107,000 — not $82,000.

This gap between what your tax return shows and what certain government tests use is one of the more common planning blind spots for retirees.

What happens to your negative gearing losses?

Negative gearing is a legitimate tax strategy. When your investment property costs (interest, depreciation, rates, insurance) exceed your rental income, the net loss reduces your taxable income. Same story if your financial investment expenses exceed your investment income.

But several key government income tests have their own income definitions — and they don't simply use taxable income. Instead, they add those losses back before applying the threshold.

The concept has a name: total net investment loss (TNIL). It equals:

  • The amount by which your rental property deductions exceed your rental income, plus
  • The amount by which your financial investment deductions exceed your financial investment income

That combined figure gets added back on top of your taxable income for the affected tests.

Which income tests add it back — and which don't?

Total net investment loss IS added back for:

  • Commonwealth Seniors Health Card (CSHC) income test
  • Medicare levy surcharge
  • Private health insurance rebate tier
  • Seniors and Pensioners Tax Offset (SAPTO)

Total net investment loss is NOT added back for:

  • Age Pension ordinary income test
  • Standard Medicare levy and LITO calculations (taxable income only)

The Age Pension distinction is worth noting. The Age Pension income test uses "ordinary income" — a different concept that uses net rental income directly and applies deeming to financial assets rather than actual investment returns. If you're on the Age Pension, your rental losses do reduce your assessed ordinary income. CSHC works differently.

When does the TNIL add-back make a real difference?

It bites hardest close to a threshold, so the thresholds are worth stating plainly rather than leaving as "check the current figure". Two worked examples follow.

How does TNIL affect your CSHC eligibility?

You're 71, recently retired, and your taxable income this year is $80,000. You own an investment property that's negatively geared by $25,000 — strong asset, good growth, but the numbers don't stack up yet. Your CSHC adjusted taxable income: $80,000 + $25,000 = $105,000.

The Commonwealth Seniors Health Card income limits are $101,105 a year for a single person, $161,768 for a couple combined, and $202,210 for a couple separated by illness, respite care or prison, with $639.60 added for each child in your care (Services Australia). So at $105,000 you are roughly $3,900 over the single limit and you do not qualify — on a tax return that showed $80,000 and looked like it had $21,000 of headroom. Services Australia reviews these limits on 20 September each year in line with CPI. There is no assets test for the card.

One further component the add-back discussion often misses: the CSHC income test looks at both your adjusted taxable income and deemed income from your account-based income streams. The balance of an account-based pension is deemed to earn income, and that deemed amount is counted on top of your ATI — even though it never appears on your tax return at all. Deeming applies if you bought or changed the income stream on or after 1 January 2015, if you were granted the card after 31 December 2014, or if your partner owns it and is 60 or older. A retiree modelling CSHC eligibility on taxable income alone is therefore missing two separate additions, not one.

How can TNIL create an unexpected Medicare levy surcharge?

For 2026–27 the Medicare levy surcharge single thresholds are: $105,000 or less, no surcharge; $105,001–$123,000, 1%; $123,001–$164,000, 1.25%; $164,001 or more, 1.5%. The family thresholds are $210,000 / $210,001–$246,000 / $246,001–$328,000 / $328,001 or more, increased by $1,500 for each dependent child after the first (ATO).

Now the trap. Your taxable income is $101,000 — comfortably under the $105,000 single threshold, so on the face of your tax return you owe no surcharge. But you hold a share portfolio with a margin loan, and once loan interest and management fees are set against the dividends received there is a $7,000 net investment loss. Your income for surcharge purposes becomes $101,000 + $7,000 = $108,000, which lands you in Tier 1 and makes you liable for the surcharge at 1% unless you hold an appropriate level of private patient hospital cover.

The practical point is the direction of the error. Negative gearing pushes your taxable income down and your surcharge income up at the same time, so the more effective the gearing looks on your tax return, the more likely you are to have quietly crossed a threshold you thought you were nowhere near. If you are deciding whether to drop private hospital cover, do that calculation on the add-back figure, not the tax return figure.

Is negative gearing still worthwhile despite the TNIL add-back?

Negative gearing reduces your tax. That benefit is real and isn't reversed by these tests. What these tests do is simply decline to extend the same benefit further — to eligibility for health cards, tax offsets, and insurance rebates that are designed around age and income rather than investment structure.

It's not a penalty. It's just a parallel set of rules with different logic.

What should you check if you're negatively geared and approaching these thresholds?

If you're negatively geared and any of the following apply, your tax return income is the wrong number to use:

  • You're approaching CSHC eligibility age and checking whether you'll qualify
  • You're on SAPTO and want to know how much of that offset you're actually getting
  • You're near the Medicare levy surcharge threshold and deciding whether to hold or drop private hospital cover

Calculate your total net investment loss — rental property losses plus financial investment losses — and add it back to your taxable income. That gives you your position for these tests.

An adviser who understands both the tax and the social security rules can do this calculation accurately and factor it into your overall strategy.

Sources

Key takeaways

  • The total net investment loss (TNIL) equals rental property deductions in excess of rental income plus financial investment deductions in excess of financial investment income. This combined amount is added back to taxable income for several government income tests even though it reduces taxable income for ATO purposes.
  • TNIL is added back for the Commonwealth Seniors Health Card (CSHC) income test, the Medicare levy surcharge, private health insurance rebate tiers, and SAPTO (Seniors and Pensioners Tax Offset). All four tests use adjusted taxable income (ATI) rather than taxable income as their base. The CSHC goes one step further and adds deemed income from account-based income streams on top of ATI — an amount that appears nowhere on the tax return.
  • The Age Pension income test does not add back TNIL. It uses ordinary income, which means net rental income directly (losses do reduce ordinary income) and deeming on financial assets rather than actual returns.
  • A negatively geared retiree with $80,000 in taxable income and $25,000 in rental losses has an adjusted taxable income of $105,000 for CSHC purposes — above the current single income limit of $101,105, despite appearing to have $21,000 of headroom on the tax return.
  • The most common situations to check: approaching CSHC eligibility age, carrying investment losses while receiving SAPTO, and being near the Medicare levy surcharge threshold when deciding whether to maintain private hospital cover.

Frequently asked questions

What is the total net investment loss (TNIL) and why does it matter for retirees?

The total net investment loss is the combined amount by which your investment deductions exceed your investment income — rental property deductions minus rental income, plus financial investment deductions minus financial investment income. It matters because while it reduces your taxable income for ATO purposes, several government benefit and tax tests add it back to calculate your adjusted taxable income. The result is that your tax return income can significantly understate your income position for CSHC, Medicare levy surcharge, private health insurance rebate, and SAPTO purposes.

Does negative gearing affect my Commonwealth Seniors Health Card eligibility?

Yes, potentially significantly. The CSHC income test uses adjusted taxable income (ATI), which adds the total net investment loss back to taxable income. If you have $80,000 in taxable income and $25,000 in rental losses, your ATI for CSHC purposes is $105,000 — above the current single income limit of $101,105, even though your tax return shows $80,000. The couple limit is $161,768 combined and $202,210 for a couple separated by illness, respite care or prison; the limits are reviewed on 20 September each year. Note also that the CSHC test adds deemed income from account-based income streams on top of your ATI, so there are two additions to make, not one.

Does negative gearing reduce my Age Pension payments?

Not in the same way as CSHC. The Age Pension income test uses ordinary income, not adjusted taxable income — so the TNIL add-back rule does not apply. For Age Pension purposes, net rental income (actual rental income minus actual rental deductions) is used directly, so genuine rental losses do reduce your assessed ordinary income. Deeming applies to financial assets rather than actual financial investment returns.

How do I calculate my adjusted taxable income for CSHC and Medicare levy surcharge purposes?

Start with your taxable income from your tax return. Then calculate your total net investment loss: add up any excess of rental property deductions over rental income, plus any excess of financial investment deductions over financial investment income. Add this TNIL figure back to your taxable income — the result is your ATI for CSHC, Medicare levy surcharge, private health insurance rebate tier, and SAPTO purposes. If the calculation pushes you above a relevant threshold, the consequences apply even if your tax return shows a figure well below it. The thresholds to measure against are $101,105 single and $161,768 combined for the CSHC, and $105,000 single or $210,000 family for the Medicare levy surcharge in 2026-27. For the CSHC specifically, add deemed income from any account-based income stream as well — that amount never appears on your tax return.

Is negative gearing still worth doing for retirees if it affects CSHC eligibility?

Often yes — the tax benefit from negative gearing is real and not reversed by these tests. What the tests do is decline to extend that benefit further into eligibility for health cards, surcharge exemptions, and rebates. The question is whether the tax saving from the investment structure outweighs the loss of a particular benefit at the margin. For a retiree whose CSHC eligibility is marginal, restructuring investments to reduce the rental loss may restore the card. This is a case where modelling the specific numbers is more useful than a general rule.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.