Data from the Australian Taxation Office shows that a lot of 'middle income earners' own an investment property or properties. These investors are mums and dads looking to protect their financial future by investing in a strong and stable asset class.
Of course, if you don’t have an investment property, you may be wondering what negative gearing is and how it works.
What is negative gearing?
Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a taxable loss, which can normally be offset against other income, like your salary, to provide tax savings.
An investment property collects $200 a week in rent
Mortgage interest repayments on the property are $300 a week
You lose $100 a week or ($100 x 52 weeks a year) $5,200 a year
Your salary is $90,000 a year
But once you take into account the $5,200 loss on your investment property ($90,000 - $5,200), your new taxable income is $84,800.
N.B: The loss on your investment property is taken into account when the government assesses your taxable income.
Click here to find out more about negative & positive gearing.
What does negative gearing mean for you?
If you know in advance that your investment will record a loss over the financial year, you can apply to the Tax Office to reduce the amount of tax taken out of your salary each pay cycle. This is called PAYG Withholding Variation and it can provide a real boost to your personal cash flow.
An investment loan needs to be treated differently
If you don’t currently own an investment property, you may not realise that an investment loan requires a different loan product and is structured in a slightly different way to a regular owner-occupied loan. As your broker, I can explain how an investment loan is structured and what you need to know before diving into this investment strategy.
If you are thinking about buying an investment property, speak to me today. I can advise you on the best way to structure your loan and gear your property.
Renee Polden 07 5562 0748