If you are considering structuring your affairs with the mindset of only reducing your taxable income here are a few things you need to know as Negative Gearing is not always the answer.
Too many people are fixated on the refund and aren't thinking enough about the asset when they're considering negative gearing. You need to be confident that you will make more than the loss back in a capital gain when you sell.
Too many taxpayers using the wrong structure for what they are trying to achieve. That's because minimising tax in the short term should never be the end goal and some structures can be wrong for long-term goals or can be costly in other ways.
We may not love paying tax however, just remember that if you do, it's because you're making income which can only be a good thing. Being smart about asset protection and long-term wealth creation should involve looking at your tax scenario but tax minimisation on its own should never be the sole reason for acting in a particular way.
Often the complexities with Structured Products, Managed Investment Schemes and agribusiness projects provide some up front tax relief but then don’t provide the capital returns investors expect to receive.
You need to be confident you’ll make back more than the losses you claim, i.e. make a profit for the risk you take.
Negative gearing is very attractive when interest rates are low, but will you be able to manage the investment when interest rates increase? Keeping interest rates low is meant to be a short term strategy for the Reserve Bank, not a long term plan.
Nevertheless for those in the 49% tax bracket and still many years from retirement, the risk of negative gearing is manageable. Think carefully before entering into an agribusiness project but negative gearing into a solid property or Investment Portfolio can be very fruitful. It can also be a forced savings plan.
Please contact your adviser at WLM to discuss other tips and strategies that may be appropriate for your circumstances.