Negative gearing is good, but positive gearing is better!

Back to News
Uncategorized

Most people understand the benefits of a negatively geared rental property or financial investment. An asset is usually negatively geared because the interest on the loan to finance the initial purchase, along with depreciation and holding costs, is greater than the income received. The investment loss allows taxpayers to reduce their taxable income by the loss incurred.

The overall objective of Negative Gearing is to, hopefully, achieve capital growth by an increase in property value or rise in share price. ingranaggi orologio - textureThe tax benefit helps cash flow and allows taxpayers to get a foothold in real estate or equity markets.

If a taxpayer has a salary of $80,000 and a rental property that loses $10,000 pa, their taxable income will be $70,000. The $10,000 loss will result in a tax saving of $3,450, which is great…but not nearly as great as a positively geared investment!

Many people worry about having a positively geared investment because they may have to pay tax when they do their tax return.  But those people are considering the wrong figure!

If a taxpayer has a salary of $70,000 and a rental property that generates a profit of $10,000 pa, their taxable income will be $80,000. The $10,000 profit will result in tax payable of $3,450, which sounds painful.  But the comparison doesn’t end there: with a $10,000 loss you are down $10,000 of your own money. However, the tax refund means you are only down $6,550.

This means, if you have a profit of $10,000, you have to pay tax, but will still have an after-tax profit of $6,550 compared to $3,450. I know which I’d prefer!

Negative gearing is good, but positive gearing is better!  A negatively geared property or investment is a great way to start but it shouldn’t be the goal and having to pay tax shouldn’t be something to fear if you’re making money!

Contributed by

dan

Daniel Causerano – Senior Accountant

Optima Partners, April 2015

Optima Partners offers support to all businesses. Whatever your requirements

For more information on how Optima Partners’ services can help your business, contact the team at info@optimapartners.com.au for a consultation.

Latest News

Debt enforcement, payday super headline ATO’s 2025-26 plan
The Australian Taxation Office (ATO) has released its 2025-26 corporate plan, outlining key priorities, challenges...
Official Statement – Phishing attempts
We are aware that some clients have recently been receiving fraudulent emails and phishing attempts...
Effective strategies for debtor management
Debtor management is a key component of long-term business success. Poor debtor management can quickly...
Choosing the Best Client Accounting Software for Your Business
Good client accounting software is essential for business growth and improvement. The right software will...
Key Dates – September 2025
September 21: Lodge and pay August monthly activity statement. September 30: Lodge PAYG withholding payment summary...
SMSF property investment: A comprehensive guide
For many investors, a popular way to invest directly in residential or commercial property is...
Super tax still on the table after first parliament session
The first sitting fortnight of the 48th Federal Parliament shed little light on the fate...
Capital gains tax in Australia: what you need to know before you sell assets
Capital gains tax (CGT) in Australia applies when you sell certain assets. Understanding the consequence...
Key Dates – August 2025
August 11: Q4 (April–June) activity statements lodged electronically – final date for lodgement and payment....
Small business tax deductions in Australia: what you can and can’t claim
The small business sector is the backbone of the Australian economy, representing over 95% of...