Negative Gearing



Back in the “good old days” we had no capital gains tax in Australia and it occasionally made some sense to add to your cost for a property to engage in negative gearing. In its simplest form this kind of “gearing”(aka “borrowing”) meant paying out more in tax deductible interest and other expenses associated with a rental property you had bought in the expectation (?hope) that at some time in the future you would sell the property at a handsome tax free capital gain.

Capital gains tax added a new dimension to this financial manoeuvre but I despair of anyone whose sole aim in negative gearing is to get a tax deduction.

I once used the term “positive gearing” in an article I wrote and more than one person looked at me blankly and said “ I’ve never heard of positive gearing, what is it?”.

Polonius farewelled his son Laertes with the admonition.. “neither a borrower nor a lender be” which would be OK for a father sending his teenage son off to Schoolies Week but definitely not be appropriate when the son is off to make his fortune in the grown up commercial world.

If the Federal Government chose to disallow tax deductions for negatively geared rentals the legislation is already in place in respect of “non commercial losses”. These can only be set off as deductions against eventual profits made from THAT commercial venture, namely buying a rental property with borrowed money which you eventually hope to recoup when selling at a profit.

I suspect that if they did this it would put a bit of a hole in Australia’s real estate market. 

Comments

Post a Comment

Popular posts from this blog

Business Structure

When setting up a new business one of the critical decisions that must be made relates to the structure of the business. The options are: ·         Sole Trader ·         Partnership ·         Joint Venture ·         Limited Partnership ·         Trust ·         Company Most people going into a new business or making changes to an existing activity that earns some money on the side (which is possibly just a hobby and therefore not taxable) will be frustrated by the answer from a professional to the question “Which structure is best for me?” The answer must be……”that depends”. Tax considerations are important, but depending on the type of the business, expected profitability and family circumstances, these considerations could easily be overwhelmed by other more important issues. The most recurring myth that I have had to reject repeatedly to dozens of clients over the last 30 years or so,is that establishment of a company means that you can cla
Read more

Divorce

I have been through a divorce. It was not fun. On a couple of occasions in the past I have assisted clients in the process of getting divorced to reduce the trauma but above all to attempt to produce a financial result that was “fair” (in whose mind?) and a separation that was practical. The first client I ever helped was the lady to whom I have now been married for 36 years. Because her husband at the time was a mate of mine (and, in a manner of speaking still is) the question occasionally arises that I could have got a much better deal for her. In my opinion a better deal is not just measured in dollars! When I graduated with an LLB after working as an accountant for almost 30 years, a solicitor who I approached for advice about what to do with this newly acquired qualification said that he could keep me going full-time providing financial advice to his divorcing clients - so that they could win in financial terms. I rejected that concept because I believed passiona
Read more

The Hard Working Australian

When I studied English at University one of the lasting imprints on my consciousness, put there by more than one of the lecturers, was the fact that our language, unlike Latin, continues to evolve. What a phrase, expression or even a word that was universally accepted as meaning something in 1948, can mean something quite different in 2018. The word “gay” springs to mind, as does the word “nice”. Nice once meant silly, foolish or simple, far from the complimentary meaning it has now. As a teenager I would have thought that the expression “hard working Australian” had a simple enough meaning. Somehow a particular band of politicians have managed to hijack these words to create an exclusive section of our country who are toiling away, being exploited, always struggling to make ends meet and deserving of more government assistance. This assistance is provided by the government from taxes collected. From whom? Surely not the hardworking Australians who are too busy working hard a
Read more