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Negative Gearing
Negative gearing is a form of financial leverage. It is a practice of borrowing money to make an investment. Here, the interest and allowable deductions exceed the investment income and can be claimed as a deduction against other types of income by the investor. But it is considered more as a tax strategy rather than as an investment. It works not only for property but also for shares and bonds.

Negative Gearing Tax Treatment
The treatment of negative gearing in Australia is as follows:

  • If the income falls short of the interest payable, then interest on an investment loan for an income producing purpose is fully deductible. For tax purposes the shortfall can be deducted from income from other sources, such as the wage or salary income of the investor;
  • Likewise, ongoing maintenance and small expenses are fully deductible;
  • Property fixtures and fittings are treated as plant, and a deduction for depreciation is allowed based on effective life. The difference between actual proceeds and the written-down value becomes income or further deduction, when they are later sold;
  • Capital works (buildings or major additions, constructed after 1997 or certain other dates) attract a 2.5% per annum capital works deduction (or 4% in certain circumstances). The percentage is calculated on the initial cost (or an estimate thereof) and can be claimed until the cost of the works has been completely recovered. The investor's cost base for capital gains tax purposes is reduced by the amount claimed; 
  • On sale, or most other methods of transfer of ownership, capital gains tax is payable on the proceeds minus cost base. A net capital gain is taxed as income, but if the asset was held for one year or more, the gain is first discounted by 50% for an individual, or a third for superannuation fund. (The discount began in 1999, prior to which an indexing of costs and a stretching of marginal rates applied instead).

In some of the following ways the tax treatment of negative gearing and capitals gains may benefit investors:

  • Losses are deductible in the financial year they are incurred and provide nearly immediate benefit;
  • Capital gains are taxed in the financial year when a transfer of ownership occurs (or other less common triggering event), which may be many years after the initial deductions;
  • If it is held for more than twelve months, only 50% of the capital gain is taxable;
  • Transfer of ownership may be deliberately timed to occur in a year in which the investor is subject to a lower marginal tax rate, reducing the applicable capital gains tax rate compared to the tax rate saved by the initial deductions.

As for such tax payments at cheap rates individuals’ can use Tax Shark ( which is a free online tax return site. Here, you can file your tax return online securely along with having transparent accountants and agents.  

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