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  • Writer's pictureAlison Wong

What Are The Advantages Of Negative Gearing | A Weapon For Australian Real Estate Investment?

Updated: Apr 11

In Australia, when it comes to real estate, there is always a connection with taxation. In addition to knowing that rental income and property appreciation are subject to taxation, many people do not know how to pay less tax. In fact, the Australian Tax Office has long prepared money saving cheats for you, so that you can earn money and pay less tax. This is called negative gearing.

What is the Australian negative tax deduction?

Negative gearing is a common strategy in Australian property investment, and Australia is one of the few countries in the world that implements this policy.

Australia's "negative tax deduction" itself is not a tax, but a tax subsidy system for investment property. This applies when an investor takes out a loan to purchase an investment property in Australia and then uses that rent to pay mortgage interest and other expenses. If the rental income of the property is not enough to cover the full loan interest and expenses, the investor can deduct the remaining part as a liability against personal income tax. This deduction can reduce the tax burden on investors, thereby encouraging more people to invest in the real estate market.

What are the advantages of Australia's negative tax deduction?

1. Reduced tax burden

Australia's negative tax deduction policy allows investors to deduct mortgage interest and other expenses, thereby reducing personal income tax. This can make real estate investment more attractive, especially for those with high incomes.

2. Improve cash flow:

By using debt financing, investors can get cash flow in the short term without having to pay for the full purchase cost of the home. This allows investors to grow their real estate portfolios faster and generate higher rates of return.

3. Asset appreciation

Property prices tend to rise over time. Therefore, Australia's negative gearing tax policy allows investors to gain income while their assets appreciate.

4. Expand the range of options

Under negative gearing, investors can expand their options when considering buying an investment property in Australia. Otherwise, investing only in properties with positive cash flow is often limited to areas with high rental returns rather than areas with high long-term appreciation potential.

How do I achieve a negative tax deduction in Australia?

Australia’s negative gearing tax does not simply mean that if the rent cannot cover the mortgage, the investor has to "stick" their own money to maintain the house.

In fact, the beauty is that negative gearing can deduct non-cash depreciation, and then deduct the tax payable with the "loss" on the book. In reality, the “loss” on the book is often not a real cash loss, but if the house price rises, it will not be regarded as "income" on the book, and it will not increase taxes as a result!

In fact, investing in real estate in Australia is like running a business:

The Australian Taxation Office (ATO) treats investing in property as a "small business", where you are the shareholder of the business. The property you invest in is a fixed asset; the property management agency is CEO or manager; your tenant is the customer; and the rent paid by the tenant is your "income". To maintain the business, mortgage interest, sewage charges, house depreciation, property management, maintenance costs and insurance premiums are all considered expenses.

The detailed items, calculation methods and practical examples of the negative tax deduction on buying a property in Australia are described in detail in my book "Buying a Property in Australia to Create Financial Freedom" (click to jump to the book page).

Who is suitable for negative tax deductions in Australia?

High-income people are more inclined to this tax arrangement because cash flow is not an issue and can significantly reduce taxes. At the same time, they can enjoy long-term capital appreciation. In Australia, doctors, lawyers, IT and other high-income earners will have several sets of real estate under their accounts for tax deduction. As a result, high-income earners usually pay less tax each year than low-wage earners, or even don't pay taxes.

Low-income people who want to achieve financial freedom by investing in Australian property are also suited. These people are more inclined to use positive leverage because cash flow is a more pressing issue. When negative gearing boosts cash flow for such investors, they can invest in new investments more quickly and expand the size of their assets.

While there are many benefits to investing in property under Australia’s negative gearing tax rule, it has always been a controversial policy. Some people believe that Australia's negative tax policy is actually encouraging more people to participate in real estate investment, resulting in an increase in demand for investment properties, which in turn pushes up house prices and puts pressure on ordinary families.

At the same time, there are risks associated with negative gearing policies, and investors may be exposed to financial risks if they rely on negative gearing policies without an effective investment strategy or management. If their investment property in Australia does not generate sufficient rent or return on investment, they may be forced to sell the property to cover liabilities or living expenses. Therefore, investors should carefully assess the risks and benefits of the negative tax deduction policy, and formulate effective investment strategies and management methods to avoid potential risks.


Alison’s Story

Born in Hong Kong an moved to Australia, I have been associated with real estate all my life. As the plane slowly landed on the runway of Melbourne Airport, my life and career also changed to another runway. I changed from a Hong Kong real estate agent to an Australian real estate agent, and successfully obtained the Australian lawyer qualification.

When I was working in a law firm, I was surrounded by highly educated professionals. Even though their wages are very well, and they are absolutely the elites in society, but their lives are full of hard labor, and it’s hard for them to get rich through buying properties.

So I spend all my time and effort on learning financial and real estate investment knowledge, hoping to achieve financial freedom as soon as possible, and let my parents who have worked hard for many years live a good life.

Now I will share with you the knowledge and experience of investing in Australian real estate, and embark on the road to financial freedom together.

Alison Australian real estate information platform

The original intention of Miss Alison to establish is to provide neutral Australian real estate information through this platform and help investors establish the most suitable investment strategy.






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