Negative or Positive Gearing?
The term gearing indicates that the real property transaction was purchased with the assistance of borrowing to fund it. Negative gearing occurs when the net income after interest on borrowing and other expenses is negative. Positive gearing occurs when the income exceeds the interest on borrowings.
Ideally you would want any property that is positively geared to have the potential for good capital growth.
Negative gearing is only beneficial if the overall capital gains exceeds the negative gearing, buying costs, holding and selling costs, otherwise why would you bother!
The overall taxation result of a negatively geared property is that a net rental loss arises. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental and other income (such as salary, wages or business income) when you complete your tax return for the relevant income year. Where the other income is not sufficient to absorb the loss it is carried forward to the next tax year.
If by negatively gearing a rental property the rental expenses you claim in your tax return would result in a tax refund, you may reduce your rate of withholding to better match your year-end tax liability.
If you believe your circumstances warrant a reduction to your rate or amount of withholding, you can apply to the ATO for a variation using the PAYG income tax withholding variation (ITWV) application
We can help with -
Complete your rental property tax returns
Calculate your before and after tax cashflow & Provide pre purchase Tax Due Diligence