Sydney, Melbourne and Brisbane property investment groups have for many years used negative gearing and it's benefits as and advertising headline in promoting property investment. In terms of property investment negative gearing in Australia and New Zealand refers to a situation where your expenses to maintain an income-producing property exceed the income of the property itself.
Positive gearing of an investment property refers to an excess of income, over and above any expenses. The ultimate aim for most smart investors being a portfolio of positively geared properties. Initially however, it is through negative gearing and the associated tax benefits that investors are able to purchase real estate at minimal cost to themselves.
The difference between the amount of rent from your property and the expenses related to the property are (assuming there is a loss) tax deductible. There is also provision for non-cash expenses, for example depreciation on items such as light fittings, carpet, building costs, etc. which may increase your available deductions.
The important words are "Tax Deductible". Below is an overview of these deductions and how the investor is able to take advantage of them to create their own real estate portfolio.
Deductions on Purchasing Costs
Calculation of depreciable items is very specialised, the above
figures are indicative only, it is recommended that the
services of a Quantity Surveyor be used to ensure you maximise your
depreciation deductions. Investors should also use an accountant who
specialises in property investment to ensure all tax deductible
items are claimed.
Another advantage to governments is the relief of pressure to supply and maintain housing for people who are not in a position to purchase their own home, thereby saving millions of dollars in funding plus huge administration and infrastructure costs.
Further to this point, approximately 34% (and growing) of the population rent. An under-supply of rental property would not only push rents up (giving rise to inflationary pressure and unhappy electorates), it would also put further pressure on the government housing supply.
To encourage the private sector to invest in property for rental, governments have made available extremely viable tax incentives for the investor. It is through these available tax incentives that investors are able to purchase property at very little cost to themselves and in many cases at virtually no cost to themselves.
Simply put: the tax man and the rental income pays for your investment property!!
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