Article by Mozo
You’ve probably heard that Labor is proposing significant reforms to negative gearing in an attempt to make homeownership in Australia more affordable. But what exactly does this term mean?
Well, in this blog we’ll aim to answer this question and more, with the help of our resident property expert Steve Jovcevski. Before we get into the nitty gritty details of negative gearing, we’ve asked Steve to give us a quick definition:
“At its most basic level, negative gearing is when you offset the tax you pay through investment related property expenses. So if you’re making a loss from an investment property and the expenses exceed your income, you may be able to claim a portion of these costs on your taxable income.”
Pretty, simple right? Now let’s move onto some of those FAQ’s...
There’s an endless list of things that can be claimed in relation to an investment property, such as:
According to Steve, you can find negatively geared properties in areas close to CBDs. “As the demand is there, these properties go up in value, which has commonly been blamed for causing housing bubbles in areas like Sydney.”
“Whereas, rental properties that provide cash flow and are thus positively geared are usually found in more affordable areas but where there is less likely to be capital growth,” explains Steve.
Negative gearing is a popular choice for high income earners looking to pay less tax, whilst having an appreciating asset in their portfolio. Steve explains in further detail: “You benefit from lowering your tax payable and also enjoy the perks of owning property by potentially seeing capital gains.”
Here’s an example from Steve: Say you spend $15,000 on your investment property over the year, you should be able to get 30c to the dollar back at tax time. “So that’s $4,500 slashed off your taxable income.”
Steve says it’s wise to get financial advice. “Before you purchase an investment property that is negatively geared, you’ll want to ensure you can reasonably afford the associated costs.” According to Steve these go beyond simply paying mortgage repayments and include things like repairs, council rates, land tax and strata levies.
“While you may be able to claim a portion of the costs at tax time, you’ll still need to be able to afford the ongoing costs that will come out of your pocket over the year,” warns Steve.
Now that you’re in the know when it comes to negative gearing, kick off your investment loan search in our comparison hub or fill out your details on our home loan negotiator page and Steve will give you a call back to discuss your investment loan options in greater detail.Investing guides