With the Federal ALP’s announcement last month to give up in its flawed quest to remove negative gearing as a wealth tool for Australian investors, this question is very timely.
Whether you’re a landlord or seeking a first property investment, it’s essential to understand the benefits and risks involved with owning a negatively geared property.
Gearing, also known as ‘leveraging’, is simply the term used to refer to borrowing money to invest in an asset, whether it’s real estate, shares, or a business. The rent earned from your investment property is then said to be either positively or negatively geared.
A property is positively geared if the rental return is higher than your interest repayments on the investment loan and other property-related expenses such as strata levies, council, and water rates.
A property is regarded as negatively geared when the rental return is less than the interest repayments and the expenses involved in maintaining the investment.
The main benefit of a negatively geared property is that the landlord can offset any losses during the financial year against other earnings, such as a salary or wage. In other words, this strategy trims your taxable income legally and reduces your annual tax liability payable to the ATO.
According to the Australian Tax Office, an investor may be able to claim the interest portion of the loan repayments and some other rental expenses as tax deductions, as long as the property is rented or is available to tenants.
As with all investments, owning a negatively geared property should line up with your personal financial circumstances and risk preferences. As part of getting your ducks in a line, it’s always sensible to check in with your accountant or tax specialist if you’re considering investing or are already a landlord.
If you’re interested in buying an investment property, the expert sales team at your local Raine & Horne office can help guide you through the entire process, from start to finish. Contact your local Raine & Horne office today to find out more.