Negative gearing calculator

The impact of negative gearing on your taxation can be summarized as follows:

• Deductible Losses: The losses incurred due to negative gearing can be claimed as tax deductions against your total taxable income. This reduces your overall taxable income and consequently reduces the amount of tax you are required to pay.
• Cash Flow Benefits: The tax deductions resulting from negative gearing can provide immediate cash flow benefits by reducing your tax payable each financial year. This may result in higher disposable income, allowing you to better manage your financial commitments.
• Capital Gains Tax (CGT): If you sell the investment property in the future and make a profit (capital gain), the deduction claimed through negative gearing may reduce the cost base of the property. This could lead to a higher capital gain and an increased tax liability when the property is sold.
• Investment Risk: Negative gearing should not be pursued solely for the purpose of tax benefits. It is crucial to carefully evaluate the financial feasibility and risks associated with any investment.

As an investment property owner in Australia, you can claim several types of deductions. These include:

• Interest on your loan used to purchase the property
• Rental property management fees
• Repair and maintenance costs
• Insurance premiums
• Council rates and land tax
• Water rates
• Depreciation on assets like fixtures and fittings
• Costs associated with advertising for tenants
• Legal expenses related to tenant disputes or eviction
• Costs associated with cleaning the property or pest control services

It's important to keep detailed records of these expenses to substantiate your claims.

In Australia, you can only claim deductions for the periods the property is rented out or is genuinely available for rent. If the property is not tenanted, and it's not actively being advertised for rent, then you typically can't claim deductions. However, if your property is available for rent and you're actively seeking tenants (for example, it's advertised online or through an agent), then you may be able to claim deductions for this period. As the specifics can vary, it's always best to consult with a tax advisor or the Australian Taxation Office for advice on your situation.

There are several risks associated with negative gearing. For example, if property values do not increase as expected, you may end up in a financial situation where the capital gains do not cover the accumulated losses. Moreover, if the property remains vacant without rental income for an extended period, servicing the loan becomes a challenge. The investment also depends heavily on the stability and future changes of tax legislation. A downturn in the property market, higher than expected maintenance costs, or changes in interest rates can also impact the financial viability of negatively geared properties.

No, negative gearing is not exclusive to property. It can also be applied to other income-generating assets like shares or businesses. If the costs (like interest on borrowed money) associated with these investments are higher than the income they generate, these investments can also be negatively geared. However, property is the most common asset associated with negative gearing due to the large loan amounts and related costs, and the potential for long-term capital appreciation.

When you sell a negatively geared property, any profit you make from the sale is considered a capital gain and is subject to capital gains tax (CGT). However, the Australian tax system provides a concession where if you've held an asset for more than 12 months before selling it, you're only taxed on 50% of the capital gain. This is known as the CGT discount.

Yes, as an owner of a negatively geared property, you can claim the costs of repairs and maintenance. This includes costs associated with repairing damage, defects, or deterioration of the property. However, be aware that "repairs and maintenance" does not include significant improvements or renovations - these costs are usually considered capital works and are subject to different tax rules. For instance, they might need to be depreciated over time, rather than deducted in the year they're incurred. Consulting with a tax professional can help clarify these distinctions.