Negative gearing is a wealth accumulation strategy whereby an investor borrows money to acquire an income-producing investment property, expecting the gross income generated by the investment, at least in the short-term, to be less than the cost (allowable tax deductions) of owning and managing the investment. The costs may include depreciation and interest charged on the loan. This arrangement may generate significant tax benefits (see attached case study) and a capital gain on the investment, when the investment is ultimately disposed of.
A negative gearing strategy can also be utilised is a Self Managed Superannuation Fund (SMSF), where the taxation loss (if any), can be offset against other Superannuation income, potentially reducing your tax payable.
Please consider the attached case study, as an example of how Negative Gearing works. If you have any questions or would like to further explore this strategy, please contact us .