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Empower Wealth Blog post by Empower Wealth

Negative Gearing Lives on Under Labor

The great thing about borrowing money to invest is that it allows you to gain access to a bigger slice of an investment that you couldn’t afford if you were to use your own money.  This is very much the case for investing in property.  Another bonus that can occur from investing in property is the tax advantages associated with negative gearing.

Negative gearing can be broadly defined as when the outgoing costs associated with holding the property/investment outweigh the income that is generated by the property/investment.

This results in a loss which can then be offset against the taxable income of the property owner.  The tax deduction received has the ultimate effect of reducing the real loss on the property.  The big trade off for making a loss on this investment is the capital appreciation of that property over time.

The recently released Henry Tax Review has made recommendations for  changes to the negative gearing system in Australia. Critics of negative gearing state that this type of benefit works in favor of the high income earner and to the disadvantage of those on lower incomes. There are others who say that the treatment of savings in the bank from a tax point of view means there is less of an encouragement for people to put their money into the bank. There are also others who blame negative gearing on the increasing housing prices as there are investors competing for the same properties as first home buyers and ‘Mum  and Dad’ purchasers.

On the other side of the ledger is the argument that such incentive encourages overall investment into housing, therefore reducing the huge government spend that would be required to build more rental accommodation. Treasurer Wayne Swan has come out and said that the Government will not be tasking up these recommendations so to this end property investors can still enjoy the benefits of negative gearing as they currently know them.

Our view is that Negative Gearing is a fringe benefit of building wealth from Property,  it shouldn’t be your primary reason to invest.  The correct asset selection to ensure capital growth is critical to wealth building, not running the property at a loss.

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