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How negative gearing works

Negative gearing is a popular tax strategy that gives investment property owners the ability to offset the cost of owning a property against their assessable income.

Negative gearing involves generating short to medium term tax losses, which arise from tax-deductible costs that are higher than investment income, and leveraging this to increase exposure to potential gains and losses.

It is a popular strategy due to its ability to reduce an investor’s taxable income through their tax losses, resulting in a lower annual income tax bill.

For example, if the rent of a property was $350 per week, and the property was fully tenanted for a full financial year, the rental income would be $18,200. If the deductible expenses for that year were $30,000, the net rental loss would be $11,800. The $11,800 loss can then be applied to reduce the property owner’s taxable income.

Under Australian income tax law, property owners can claim a tax deduction for any cost they incur if it is sufficiently connected to their investment property. Non-cash expenses, such as depreciation, can also be deducted. General tax deductions relating to rental income include:

While negative gearing carries many benefits to property owners, the strategy isn’t without pitfalls. Negatively geared property results in a loss, so before committing to the strategy, it is worth considering aspects like what will happen if you cannot fill your rental property at any one time, or if there is a dramatic turn down in property values and your investment fails to increase in value.

Posted on 5 November '15 by , under Tax.

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What to consider when consolidating your super

The ATO reported that 45% of working Australians were not aware that they had multiple super accounts in 2016. Having multiple super accounts is particularly common for individuals who have had more than one job. If this is you, it is important to identify and manage your super accounts because having more than one can be costly as a result of account fees from multiple funds.To combat this, you may want to consolidate your super, which moves all your super into one account. Not only does this save on fees, but it also makes your super easier to manage and keep track of.

Before consolidating your super, it is important to do the following:

Research your funds' policy
Compare your active super accounts so you can make the right choice about which one you should close. Things to assess include:

  • Exit fees
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Check employer contributions
Changing funds may affect how much your employer contributes, as some employers contribute more to certain funds. Check your current accounts to see if changing funds will affect this. Once you have selected a super fund, regardless of whether you choose a new super fund or one of your existing ones, provide your employer with the details they need to pay super into your selected account.

Gather the relevant information
When consolidating your super, you will need to have the following details ready:

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  • Your fund's superannuation product identification number (SPIN).
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  • Details of your previous fund.

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