Tax laws favour two things in Australia: dividend imputation and negative gearing. Negative gearing is best applied to real estate, so you have both tax benefits and real property growth working for you. It’s often said real estate doubles every 10 years, but of course this is a generalisation.
This is why you shouldn’t put money in the bank at bank interest rates. It’s currently not the greatest return on investment and allows the banks to book in massive profits each year.
Negative gearing is especially beneficial on newer property where you can deduct the cost of the purchase as well over 40 years. In addition to this, is that capital gains are only taxed at 50%.
The only real danger in this strategy is picking a property in a mining area or an area that’s very overcrowded, you may book a loss.
Negative gearing gives you a benefit of any losses on property being deducted at your marginal tax rates, so it favours people on salaries over $85,000. However, anyone on $40,000 or more will benefit.
Finally, it’s important your first property pick is right and you have patience to wait for good returns.
With Swan, Turnbull, Morrison and Shorten all wanting negative gearing wound back, it’s clear what the Treasury wants, all the money and you to have none… what better incentive.
Terry Murphy CPA BBus DFP, Director of TaxAssist Accountants
By Terry Murphy
Last updated September 2016