How do you negative
With negative gearing,
the cost of owing an investment exceeds
the income it produces.
Put simply, your investment must make a
loss before you can claim the tax
It works not only for property, but also
shares and bonds.
Negative Gearing can
also offer tax benefits?
Under current Australian
Taxation Laws, an investor may be able
to claim a deduction for the loss, which
can be offset against other taxable
income such as salaries, business income
or other investment income.
For example, let's suppose you buy an
investment (it could be shares, managed
funds, a rental property, etc) for
$100,000 and pay $6,000 in interest and
receive $3,000 income from the
investment. You have a loss before tax
of $3,000. Suppose you have a well-paid
job and pay tax on your salary at the
top rate of 48.5%. You can now deduct
this loss from your taxable income, and
reduce your tax bill by $1455 (48.5% of
$3000). The tax saving reduces your cost
You only get a tax benefit if you earn
other taxable income in the first place.
If you earned nothing else apart from
his investment, you’re just left with a
Risks associated with
There is an inherent risk
associated with borrowing to fund an
investment. While gearing can help you
increase your gain on borrowed funds,
the losses can be large in adverse
Friend or Foe?
Often proclaimed as a
property investor's best friend,
negative gearing is a strategy that
Provides immediate tax benefits while
also gaining capital appreciation.
Sadly, it is a concept that few people
really understand and causes a lot of
Borrowing to invest, or gearing, can be
a powerful means to build wealth. This
of course depends on your own personal
needs and circumstances.
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Have you ever stopped to think about all
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