Useful Tips

Negative Gearing

Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. There are also taxation considerations that you should discuss with your accountant. Contact us to discuss your individual circumstances.

Definition
A negatively geared investment property is one where the cost to own and maintain it (loan interest, council rates, maintenance etc) are higher than the rent received. The net outgoings create a loss that is usually an allowable tax deduction.

Benefits
Part of your expenses in maintaining a property may be refunded back to you from the Tax Department, once your annual tax return has been lodged and assessed.

Disadvantages
By definition, negative gearing means that your expenses are higher than the investment income. You will have to fund the regular Cashflow shortage from your own cash resources.
There is always risk in assuming a capital growth. It is particularly relevant if you have bought the wrong property or if you are forced to sell in a property market downturn.

Things to consider
Ensure that investment loans are separate from any private debts and clearly traceable to the use of the funds.
Have an offset account to deposit rent and pay expenses from, to make it easy (equals cheaper) for your accountant to trace the relevant transactions.
Set up the investment loan (or loans) as Interest Only repayments, and pay any extra money off your home loan. Reduce your non-tax deductible interest payable, while leaving the tax-deductible interest at it’s maximum.
Do not mix private money with investment loans, there are specific taxation issues with regards to redraw loans in relation to this.