What is negative gearing?
Negative gearing is something that’s often in the news. If you’re a current or potential property investor, it’s important to understand exactly what negative gearing is and the possible benefits and risks that come with it.
Positive and Negative Gearing
Gearing is when you borrow money to invest, and it’s most often talked about with regard to investment properties. The income earned from your investment is usually positively or negatively geared.
A property is positively geared when the rental return (the amount of rent you receive from your tenants is higher than your interest repayments and outgoings. The income from positively geared properties, for instance, can help to improve buying power by putting money into your account and can increase your ability to meet repayments.
Investors closer to retirement or in a lower income bracket may choose positively geared investments to maximise their income potential.
A property is negatively geared when the rental return is less than your interest repayments and outgoings. In general, taxpayers with a higher taxable income may choose a negatively geared investment property in order to claim any loss on the property against their other taxable income. They may also benefit from any long-term capital growth potential.
Some things to know
While negative gearing can have financial benefits, the over-arching message is that there's often a lot more to investment properties than reducing tax. You need to rely on professionals and do your research so that your are totally comfortable and understand your position before making any purchase.
With an upcoming election and changes to negative gearing on the cards, you need to be aware of how you may be impacted should any changes be passed.
You should contact our office on 4616 9000 if you have an income tax or finance advice inquiries. Keep an eye out for future communications around negative gearing.
The information provided in this BLOG is of a general nature only and has been provided without considering your objectives, financial situation or needs. Because of this you should consider whether the information is appropriate considering your objectives, financial situation and needs.