Compared to Anna who has to pay additional tax as a result of her positive gearing, John’s negative gearing and tax depreciation brings his taxable income down from $70,000 (-$19,000) to $51,000. As a result, John’s tax payable for the year is reduced from $14,616 to $7,826, saving $6,790.
This essentially puts John ahead by $5,790 for the year in positive cash flow despite his investment being negatively geared. Even when compared to Anna’s positively geared investment, John is earning $4,742 more than Anna’s investment which does not take advantage of depreciation.
While this example is simplistic, it highlights the crucial importance of carefully considering your options before investing in property. Both negatively geared and positively geared investments have their advantages and disadvantages, and it is up to the individual investor to determine which strategy suits their financial goals.
Our property investment strategists can assist in tailoring a strategy to align with your goals and circumstances. They can also connect you with finance professionals who can help minimise your short-term tax obligations while building a portfolio of high-quality assets over the long term. Begin by booking a free appointment using the button below.
This article is intended to provide general information only, current at the time of first publication. It does not constitute any financial advice, offer, contract or inducement to buy. Investors are expressly recommended to do their own due diligence in relation to any investment decision they make and seek independent financial advice.