December 15th, 2021Money with Matt – Negative gearing is a positive thing. Yeah?

Negative gearing – “the practice of investing borrowed money in such a way as to result in a loss that can be claimed as a tax deduction”.

Over the years I have heard the following statement numerous times:“My rental is negatively geared, which is good.”

Without fail, I always have to remember not to spill my coffee resulting from the shock. My reasoning is the concept of negative gearing is revolved around losing money.

I feel the need to be clear on this. In order to obtain negative gearing (basically known as a tax deduction) you need to essentially lose money. This is a concept that I feel important to educate people on.

Tax deductions can be helpful but consider that in order to receive a tax deduction of $30, you would have to have spent $100 (using a 30 per cent tax rate). In this scenario, you are still out of pocket by $70.

I said to a client recently that I’d take a positively geared rental property any day over a negatively geared one. That is, if I make a profit of $100, I have to pay $30 income tax. Yes, I have to hand over the $30, but I get to keep the remaining $70. In that same conversation, I made a client laugh by saying that I’d happily pay $300,000 income tax per year if possible, because it would mean that my income would be $1,000,000 per year.

My view is that a good accountant will help you in every way possible to minimise tax, but paying tax is actually a good thing, because it means that you are employed and earning a healthy wage.

– Matthew Richardson is a certified accountant with Cooke & Foley based in Ballarat

The content expressed within Matt’s column does not necessarily reflect the opinions, beliefs and viewpoints of The Local Publishing Group Pty Ltd. But we do like Matt!