The advantages and disadvantages
If you have a negatively geared property, you essentially have a loss of income. But in Australia, that loss can be offset against your other sources of income, including your salary – meaning that your total taxable income, and therefore the amount of tax you have to pay, is reduced.
These tax benefits are one of the main reasons many property investors choose to take advantage of negative gearing. Other benefits for investors include:
- Future capital gain, which will further offset negative gearing losses
- A wider range of properties to choose from – finding properties with positive cash flow can be difficult, and if you choose to utilise negative gearing you’re more likely to find a property in a stable, high-growth area.
However, the potential downsides of negative gearing should be kept in mind, too. Some of the disadvantages of buying a negatively geared investment property include:
- The need to still have enough income to maintain out-of-pocket costs
- The risk of not being able to absorb the effects of falling property values.
The current situation
The labor is officially abandoning plans to change negative gearing if it wins government and will not touch the legislated stage three income tax cuts, with shadow cabinet formally deciding its position on the policies in late July.
Disclaimer: This information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your situation, and for professional advice, seek out a financial adviser.