Negative gearing, is it dead?
Here's what you ought to know about negative gearing in 2016, and beyond.
Is negative dead? Put simply, no. In fact, negative gearing remains a legitimate financial strategy that can improve your overall investment returns.
To go back a step, 'gearing' is best explained by realestate.com.au as simply borrowing money to buy an asset. In the case of real estate, you take out a loan to purchase a property.
'Negative gearing', however, means that the interest you are paying on the loan is more than the income you receive from the property. And, as a result of making a loss, you pay less tax on your other income.
There are more than two million landlords in Australia and approximately 60 per cent made a loss in the 2013-14 financial year, according an April 2016 Grattan Institute report. What's more, the average loss was $10,000.
You might recall the Labor Party suggesting changes to legislation around negative gearing and capitals gains tax leading into the 2016 federal election. After all, the Grattan Institute reported changes to negative gearing and capital gains tax could save the Commonwealth Government about $5.3 billon a year.
However, the Liberal Party argued these changes would have a devastating impact on the Australian property market with one-third of buyers now investors.
In fact, Commonwealth treasurer Scott Morrison said two-thirds of those using negative gearing were Australian's who earned less than $80,000 a year.
So, with the Liberal Government regaining power and dumping plans to target negative gearing as part of its tax reform policy, we can safely say that it's not dead, yet.
What's more, negative gearing remains a financial strategy that can be used to help improve the overall return on an investment that costs you money to hold onto. It's about improving your overall investment returns and building your wealth.
But remember, negative gearing may be a less attractive financial strategy while interest rates are at record lows. This is because the cost of holding an investment is less, which means the tax benefit is also lower.
This, coupled with an asset (i.e. your property) that may not be increasing in value as much as it has in the past, can make a negatively geared investment unappealing.
To find out more about negative gearing and if it is a financial consideration that might work for you, call one of our expert lending consultants today on 1300 780 440. In the meantime, don't miss our free eBook How to Buy an Investment Property: a step-by-step guide to investing in Australia.
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