Mention negative gearing and most people automatically think of tax savings. You borrow to invest and claim a tax deduction for your borrowings. To the extent that these borrowings – and other costs on your investment – exceed the income you earn from the investment, you can use that tax deduction to reduce tax on your other income.
But think about it for a moment. To claim a tax deduction using negative gearing, you have to spend more on your investment each year than you earn from it. In other words you have to lose money. It might make sense to do that for a time as part of a long-term wealth creation strategy, but as an aim in itself it hasn’t got much to recommend it.
Clinton says for negative gearing to make sense, you need to eventually plan to recoup all those losses and more. The tax benefits are real, but shouldn’t be the primary focus. After all, if all you wanted to do was to save tax, you could go on losing money indefinitely. How smart is that?
A PGFS Financial Advisor can asssist in helping you determine whether property gearing is appropraite for your individual circumstances.