Negative gearing advice
Negative gearing of investment property has become somewhat the norm in Australia across the past couple of decades, however it’s wise to be aware of all financial and tax implications before taking the plunge.
Taking out a loan to invest into an asset, such as property, should always be carefully considered. Moreso when your investment is negatively geared, for example the net rental income (after deducting expenses) is less than the interest paid on your borrowings.
Investing in properties is about making money, so making a loss is never ideal. However, under Australian legislation it’s possible to deduct any losses made on an investment property from your taxable income, so negative gearing can sometimes work in your favour.
The key generally is to buy a property with an eye on long-term capital growth, enabling a healthy profit to be made from its sale down the track, while utilising tax benefits to absorb or minimise losses in the meantime. When selling investment property, your overall profit is often larger if you’ve negatively geared because you receive a 50% Capital Gains Tax discount.
Everyone’s situation is different, however, so it’s wise to seek professional negative gearing accounting advice that takes into account all of your income streams and also considers the likely capital growth of the property you’re intending to invest in. That’s where Greenhalgh Pickard can help.
Income tax benefits of negative gearing
Being able to claim a tax deduction for the full amount of your net rental loss against your taxable income (your rental income plus other income, such as salary, wages or business income) is the principal benefit of negative gearing.
There are some complexities involved, including:
If the other income is not sufficient to absorb the loss in the relevant income year, it is carried forward to the next tax year.
If rental expenses claimed in your tax return would result in a tax refund, you may seek to reduce your rate of PAYG income tax withholding to better match your year-end tax liability (via a PAYG Income Tax Withholding Variation application lodged with the Australian Taxation Office).
A Greenhalgh Pickard property investment accounting expert can advise you on what scenario you will likely face if you proceed with an investment you have in mind or help you determine where you stand with your existing investment portfolio.
Capital Gains Tax benefits of negative gearing
Capital Gains Tax applies on all investment properties, however a 50% discount may be granted to negatively geared properties if it’s held for at least 12 months.
The tax payable can further be reduced by deducting capital losses from the property’s appreciation in value, such as real estate commission and closing costs on the original purchase.
If you’re considering the sale of an investment property, ensure you’re fully aware of the Capital Gains Tax you are likely to incur by speaking with a Greenhalgh Pickard property investment accounting expert.
How to make negative gearing work in your favour
The ideal scenario for a property investor considering negative gearing includes the following:
Property prices are on the increase – and there’s no indication of a potential downturn • You sit within the top income tax brackets – which means you’re eligible for the biggest tax breaks
No alterations to the tax laws around negative gearing have been foreshadowed
If you’re unsure whether or not to proceed with an investment you have in mind, have one of Greenhalgh Pickard’s accountants crunch the numbers for you.
Expert help regards all legal and accounting aspects of property transactions is available at Greenhalgh Pickard.
Simply call (07) 5444 1022 today to book an appointment at Caloundra, Kawana Waters, Coolum Beach or Airlie Beach.
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Greenhalgh Pickard Solicitors and Accountants is an innovative Queensland accounting firm and law firm with offices in Sunshine Coast. Our clients predominantly live and work on the Sunshine Coast but we've many clients also located throughout Queensland, interstate and even overseas.
With accounting and law offices in Caloundra, Kawana and Coolum Beach, Greenhalgh Pickard Solicitors and Accountants takes pride in being trusted legal guides and financial business accountant advisers to clients everywhere.
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