Negative gearing is the claiming of the loss from a rental property against your other income.

The result is that you pay tax on a lower taxable income. Let’s break it down. Your income is $100k. You have rental income of $20k, and rental property expenses of $22k. The shortfall of $2k reduces your salary of $100k to $98k, meaning that you don’t pay tax on $2k. The tax rate at $100k is 39% including the Medicare levy of 2%, so your refund would be $780.

Obviously then, the higher your income = the higher your tax rate = the greater your refund. The highest tax rate in Australia at the moment is 49%, including the Medicare levy and the temporary budget repair levy so, in this same scenario, if your income was $200k your refund would be $980.

Talk to your accountant about whether negative gearing could work for you.


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