Negative gearing is a property investment strategy that many Australian investors use, but it’s often misunderstood. Let’s break it down into simple terms.
What Is Negative Gearing?
Negative gearing occurs when the rental income from your investment property is less than your expenses (including loan interest, maintenance costs, and other property-related expenses). Simply put, you’re making a loss on your investment in the short term.
Read more: What Is Negative Gearing?
How Does Negative Gearing Work?
When your property is negatively geared:
- You’re spending more on your investment than you’re earning from it
- This loss can be offset against your other income (such as your salary)
- This reduces your taxable income, potentially resulting in a tax benefit
For example, if you earn $90,000 per year and your investment property makes a $10,000 loss, you’ll only be taxed on $80,000 of income.
Read more: Understanding the Basics of Negative Gearing in Australia
Why Would Investors Choose to Lose Money?
It might seem counterintuitive to invest in something that loses money, but there are two main potential benefits:
1. Tax advantages: The loss reduces your taxable income, potentially putting you in a lower tax bracket
2. Capital growth: Many investors accept short-term losses hoping the property will increase in value over time, eventually outweighing the ongoing losses
Is Negative Gearing Right for You?
Negative gearing isn’t a guaranteed path to wealth. It involves risk and requires careful planning. Before diving in, you should consider:
- Your cash flow situation (can you sustain ongoing losses?)
- Your investment timeframe
- Current market conditions
- Your overall financial goals
At Griffiths Advisory, we can help you assess whether negative gearing aligns with your financial situation and investment goals. We’ll work with you to understand the tax implications and develop a strategy that suits your specific circumstances.
Have questions about negative gearing or other investment strategies? Contact us. We’re here to help you navigate your options with clarity and confidence.
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Phil has been the Managing Director of Griffiths Advisory for 29 years, combining his expertise in taxation, business advisory, superannuation, negative gearing, and wealth creation. He also loves an active lifestyle, indulging in surfing, cycling, snowboarding, and spending quality time with his wife and two children.
