Negative gearing is the ability for property investors to use the losses associated with managing an investment property to be offset against their taxable income.
For example, a property investor has purchased an investment property and after taking away all expenses associated with the property from the rental income, the investor has made an annual loss of $10,000.
If the investor was earning a taxable income of $100,000 per year but had an investment property running at a loss of $10,000 per year then the investor would be taxed on $90,000 per year.
Based on 2014-15 income year (I used the ATO simple tax calculator)
With a taxable income of $100,000, the tax would be $24,947
Whereas a taxable income of $90,000, the tax would be $21,247
The investor would pay $3,700 less tax to reflect their lower income.