Whatever happens don't try to claim any capital repayments as recommended here, since you'll get into froth & bubble with Australia's taxation office.
Again definitely not - losses calculated as explained above after depreciation (what the Americans tend to term "paper losses") are offset against income, and certainly not against your annual tax, although that would indeed be nice.
I wrote a short article on how negative gearing works in practice using actual a few examples here.
Reproduced below are my points:
Negative Gearing - What Needs to Change?