Here’s the truth: You won’t find the phrase ‘negative gearing’ in tax legislation.
What is negative gearing?
The term is commonly used to describe a situation where expenses associated with an asset (including interest expenses) are more than the income earned from the asset. Negative gearing can apply to any investment, not just housing.
Individuals who are negatively geared can deduct their loss against other income, such as salary and wages, saving them money on taxes. This is consistent with the broader operation of Australia’s personal income tax system.
Australia’s tax system operates on the principle that people pay taxes on their personal income, minus any expenses (called deductions) incurred in generating that income.
Why would you want to try negative gearing?
While investing in shares or investment properties might initially seem counter-productive, they can be a very effective method of growing one’s wealth. Although it costs you money to buy the shares or the property itself, some people are willing to take the loss so that when they eventually sell it for a capital gain, they can more than cover this loss and come out ahead.
Also, especially in today’s pandemic economy, some people might find themselves unexpectedly in a loss position if they incur higher expenses or lower returns than anticipated.
When you sell a property, only 50 percent of the increase is subject to capital gains tax, as long as you have owned it for more than 12 months.
There are so many people choosing to gear property investment negatively because of the general belief that it is a good idea. Other factors include non-tax-related issues like perception and bias towards investing in real estate, specifically during an economic downturn. For example, when experts make statements announcing that now is a better time than ever to invest in real estate properties, the news media makes spectacular statements regarding similar subjects, which may further enhance these perceptions and biases.
There’s Another Way
Although negative gearing is a method many people use to save on taxes through investment properties, there are a lot of financial structures that can help you save even more (and have less risk). At OneCorp, we like to assist our clients with locating properties that could benefit from the same negative gearing principles (i.e., all the tax benefits of an investment property) to be in a neutral gearing position instead of a negative.We Can Help
Ready to start creating passive income with property? Think you’re ready to invest in one or more properties? We can help! At OneCorp, we walk you through every step of the process at NO cost to you. We create a personalized property strategy and help you find the best opportunities on the market so you know you’re getting the best return. Getting started on your investment property journey has never been easier:- We start by helping you set clear goals and objectives as to what you want to achieve through property investment.
- From there, we run the numbers through proprietary software to accurately assess exactly what you need out of a property portfolio to achieve those goals.
- Lastly, we find the perfect property to make those objectives a reality!
