The real benefits of negative gearing are only realized when you combine the correct tax and financial advice with a property in the right location funded by the most suitable loan product. You should always seek expert professional advice to make sure the purchase is within your budget and will provide long term taxation and financial benefits.
By definition, negative gearing is where you borrow to acquire an income producing asset and the interest and other tax deductible costs you incur exceed the income you receive from the investment. Creating wealth through purchasing an investment property is a well established practice in this country, however, negative gearing can also apply to other types of income-producing investments such as shares and managed funds.
The attraction of borrowing or ‘gearing’ is that you can invest in shares or property that might otherwise have been unaffordable. For individuals, the loss can also be offset against other assessable income and the tax benefit will depend on your marginal tax rate.
How We Can Help You … When buying an investment property we can assist you in several areas: We have a comprehensive booklet available to clients, ‘The Complete Guide to Negative Gearing & Property’ that explores what expenses are deductible, what costs need to be apportioned and which costs are non-deductible. It explains how negative gearing works for tax purposes and what costs form part of the cost base for capital gains tax purposes. It guides you through what we describe as the 13 steps of negative gearing and is available free of charge to our clients in conjunction with a negative gearing consultation. Evaluate the tax consequences – Using an intelligent software tool we can prepare a 10 year cash flow analysis of the proposed property, taxable income forecasts and equity projections. This ‘what if’ analysis let’s us quantify the financial impact of changes in key variables such as rental income or mortgage interest rates. Where to buy – through the services of a buyer’s advocate we are able to help you locate the right property in the right location with a view to maximizing the capital gain on sale. Finance – through our affiliation with a mortgage broking group we can help you find the ideal loan that is correctly structured for taxation purposes. The tax loss on the property can pose a major cashflow issue, however, we can prepare an application to vary your PAYG tax withholding so that your annual tax deductible loss is reflected in your regular pay packet. Historically we have found the calculation of capital gains on sale of property to be a source of major headaches and frustration due to the loss of source documents. We can make recommendations regarding your record keeping including recording cost base details for capital gains tax purposes.