Negative Gearing Explained

March 17, 2016

Australia has one of the most advantageous tax systems for property investors in the world. Many Australians use negative gearing to assist them to ‘cashflow’ or hold their property investments. In fact in 2013 $12billion was
claimed in Australian tax returns.

Negative gearing is where an investor borrows money to acquire an income producing investment property, expecting the income generated by the investment, at least in the short-term, to be less than the cost of owning and managing the investment, including depreciation and interest charged on the loan. This “loss” is able to be used to reduce the investors total taxable income for the year – which can lead to substantial taxation savings when the end of year tax return is lodged.

Negative gearing benefits can be quite high when combined with a modern property – in which depreciation claims and benefits can be high. Smart investors use this strategy to allow them to hold multiple properties, and build a portfolio of property investments, which is relatively easy to cashflow. In todays low interest rate market – if you are investing in the right area, with solid rental yields, and low vacancy rate risk; and in the right type of property, with high deprecation benefits available – you can quite easily secure a cashflow positive property; that is in a capital growth focused market. An ideal scenario.

Amending Negative gearing is a hot topic of late, being discussed in politics to address a potential avenue to improve the Federal Budget. Each the Labour and Liberal Party’s have their own opinions and approaches to this topic. If you would like assistance with the identification of such properties, make sure you contact Meridian Australia today at info@meridianaustralia.com.au.

 

 

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