Each case is different with negative gearing
Where do I start? A common question asked by all people who have heard about property investing and understand that it is an avenue for wealth creation but are not quite sure what or how to buy a property.
Blogger: Brad Callaughan, Callaughan Partners
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The most commonly asked question is about negative gearing. Not so much what is Negative Gearing is but more should I be doing it and will it reduce my tax.
I want to say that each case is different and you really need to seek advice before you make a decision on buying a negatively geared property. The structure and the setup in which we buy can make a huge difference to your negative gearing.
I want to set out two examples below that can show you the tax benefit of negative gearing. One on $72,000 and the other on $154,000. For this example, they both have the same investment property -House & Land package, purchased for $450,000, with 80% lend from the bank at 7% Interest Only. We have used a low estimate of property expenses.
Let's take 2 different income earners:
|
EARNER 1 |
EARNER 2 |
|
|
Gross Wage |
72,000 |
154,000 |
|
Tax Payable |
15,150 |
44,930 |
|
Medicare Levy 1.5% |
1,080 |
2,310 |
|
Flood Levy |
110 |
790 |
|
Total Tax Payable |
16,340 |
48,030 |
|
Rental Income |
21,403 |
21,403 |
|
Rental Deductions |
-5,186 |
-5,186 |
|
Rental Interest |
-25,406 |
-25,406 |
|
Depreciation |
-7,708 |
-7,708 |
|
TAXABLE INCOME |
55,103 |
137,103 |
|
Tax Payable |
10,437 |
41,355.68 |
|
TAX SAVING |
5,903 |
6,674.32 |
(Assumptions: Both have Private Health insurance and have no other tax deduction for the simplicity of this example.)
So as you can see above, negative gearing is a great way to reduce your tax. The added benefit is the depreciation expense. This is a must for all property investors to get. They can cost up to $800 but this amount is tax deductible as well as giving you a $7,708 deduction per year.
For all my clients we prepare of PAYG Variation. This effectively allows the client to get their tax break/refund throughout the year instead of the end of the year and can be used to help fund the interest repayments or be used to pay down their personal house debt.
In the above example that would be an extra $113.52 and $128.35 in your pay each week.
If you have been considering negative gearing for a while, now could be the time to call us and find out how.
About Brad Callaughan
Brad Callaughan is a specialist in taxation, accounting and business advisory. He is the managing director of Callaughan Partners that was formed to deliver and exceed client’s expectations, whilst charging upfront fees. Brad is an avid property investor and renovator. Brad is also a strong force behind the development as well as sitting on the board of the Ross Hutchinson Foundation. He can be contacted at http://www.callaughanpartners.com.au
