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Negative Gearing

In our last article before the end of the year we wanted to touch on a topic which in our experience is not always fully understood. Let us explain what negative gearing is and how it works in practice.

What is it and How Could it be of Benefit to You.

Negative gearing is the mechanism whereby currently the ATO gives you a tax concession on the costs that you incur that are related to investment assets, including investment properties. In essence, they allow you to deduct most of the expenses related to that investment from the income that the investment generates, resulting in a net profit or loss on that specific investment – this net gain or loss is then added to or subtracted from the remainder of your taxable income. This mechanism can have clear tax benefits if your overall loan portfolio is structured and administered in the correct way.

What am I Allowed to Deduct?

It’s crucial to understand which costs associated with investment properties are allowable deductions. Of course the primary cost tends to be the interest that you pay on the related loan, together with body corporate fees, cleaning, council rates, insurance, land tax, property agent’s fees, and water charges and in some instances depending on your specific property, potentially your share of the depreciation expense of the building. Your accountant or the ATO are best placed to advise you on which deductions are allowable and which are not. It’s also important to understand that when it comes to the loan expenses related to this property, the test that the ATO uses, is a test based on “purpose” – i.e. for what purpose the debt relates to. People often make the mistake of believing that they can increase their investment property loan, extract surplus equity to purchase their owner occupied home and still have this regarded as investment debt – based on the purpose test, this is not investment related debt, but rather mixed purpose debt and hence not normally all tax deductible debt.

A key point to remember though is that whilst negative gearing may leave you with a tax deduction, that scenario may well leave you in the short term with a negative cash flow situation with regards to that specific property – if your costs are exceeding your income, you will need to ensure you are in a position to be able to contribute the short fall on a monthly/yearly basis.

Good Debt Vs Bad Debt

Negative gearing is also often referenced in the expression “good debt vs bad debt”. Essentially the phrase refers to tax deductible debt vs non-tax deductible debt. As I’m sure you would be aware – costs related to your owner occupied property are not tax deductible, therefore the sensible strategy if you are in a positon whereby you own your own home and an investment property, would be to pay down your owner occupied/non-deductible debt as quickly as possible and keep your deductible debt balance as high as possible, maximising your tax position, whilst managing the combined cash flow requirements of the two loans.

In conclusion, negative gearing is a feature of the current tax system that could potentially provide you with tax benefits depending on your specific situation. If you are considering a strategy which involves taking advantage of negative gearing benefits we urge you to consult your accountant to ensure you are entitled to the benefits you believe you may be.


By Gareth Bird, Logix Finance.

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  • Posted by The Goldman Brothers
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Opportunities like this don't come along very ofte Opportunities like this don't come along very often. An entire block of 8 strata apartments in the heart of Bondi Beach. A well maintained Art Deco building, 'Milton Hall' at 50 Roscoe Street presents an incredible investment and/or development opportunity.
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We love getting feedback from of our clients. For We love getting feedback from of our clients. For this wonderful family in Bellevue Hill we both sold them a home and then sold their home. They experienced our services as both a buyer and a seller.
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"We experienced Mark as both a seller and a buyer. He was consistent in the service he provided from either end (which in itself is very unusual). He presented himself very well, always polite and respectful, pursuing interests with honesty and integrity. We would have not gone ahead with this buy-sell move in such a short time, if he hadn't been the estate agent for the seller, or our estate agent. He is an exceptional real estate agent, with professionalism."

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Investors and Developers - here is a rare opportun Investors and Developers - here is a rare opportunity to purchase an entire block of 8 strata apartment in the beating heart of Bondi Beach. A well maintained Art Deco building, 'Milton Hall' at 50 Roscoe Street is a short stroll to the sand and moments to Bondi's vibrant cafes, restaurants, shops and bars.
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For further info click on the link in our bio
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Point Piper lifestyles. With the Royal Motor Yacht Point Piper lifestyles. With the Royal Motor Yacht Club directly across the road, this exquisite Art Deco apartment has a world class location, exclusive finishes and house-like proportions. See our bio for further info. 
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Full of period features, including this detail in Full of period features, including this detail in the original Terrazzo floors, this oversized, top floor, Art Deco apartment was sold prior to auction last night. Low interest rates, motivated buyers and limited stock are all contributing to the high demand we are seeing for properties of this calibre. Contact us for further information.
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According to Damian Cooley in an article on the SM According to Damian Cooley in an article on the SMH's Domain website today "The Market is Booming". Our opinion is the same. A combination of high buyer demand, limited stock and confidence in the market seems to all contribute to the current record breaking auction clearance rates. 
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The lovely @lisa_kramer1 welcoming visitors today The lovely @lisa_kramer1 welcoming visitors today at the open home for Penthouse 1 at 24 New South Head road in Vaucluse. Judging by the number of groups we had through, interest in this stunning residence is red hot. 

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Point Piper - 2 Bed / 1 Bath / 1 Car - With house Point Piper - 2 Bed / 1 Bath / 1 Car - With house like proportions and a world class location, this stunning ground floor residence is located in a well-maintained Art Deco building moments to the Royal Motor Yacht Club and local harbour beaches. See link in bio to view the property.
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The Goldman Brothers Team is having a wonderful en The Goldman Brothers Team is having a wonderful end to the year, selling two residences on Friday alone. Barry and Mark negotiated the sale of a stunning home at 2/7 Marathon Mews, Double Bay just one day after listing the property. An incredible result for all involved. They also sold an immaculately presented family home at 2/103A Birriga Road in Bellevue Hill prior to the scheduled auction. For further info click on the link in our bio.
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