Those who are now going to be affected by the Budget Repair Levy, with personal income levels over $180,000, might be taking a closer look at investment strategies this year, HLB Mann Judd said in a statement.
“Many may decide that a negative geared property is now the best way to not only beat the levy, but also ensure they reduce their taxable income with legitimate measures as the end of financial year approaches,” the statement said.
However, HLB Mann Judd Sydney partner, wealth management, Jonathan Philpot said high income earners need to carefully review their situation.
“Negatively geared investments will again be considered by those looked to increase tax deductions and decrease their taxable income [and] property has always been a favourite of many investors, given the comfort with property ownership and the ease of borrowing to purchase a property,” he said.
“However, the greatest trap with negative gearing is looking at it only from a tax perspective and not as a long-term investment. If the underlying growth in a property is not sufficient to make up for the shortfall of negative income, it is not a good investment option,” he said.
Mr Philpot said negative gearing in SMSFs is a more “aggressive” strategy to build your wealth.
“I think where you are talking about business property and business owners, they are able to perhaps put their property into the SMSF and when they are able to control their income, I think [negative gearing] actually does make sense,” he said.
Hello Elaine
Thanks for the reply. I acknowledge your kind comments but I would add that, if advisors told the people that the expense doesn’t produce a 100% tax deduction, they may (I say may) see the folly of doing it merely for a tax deduction. And don’t even get me started on the dominant purpose obstacle contained in Part IVA of the ITAA 1936. Let’s see someone try to explain that simply doing a negative gearing exercise can be explained as a normal commercial exercise. Maybe they think they can overcome the Spotless decision.
I don’t know George. I’ve seen an awful lot of people buy trees for the purpose of obtaining a tax deduction. Even in a SMSF in pension phase (brilliant advice there!). In almost 20 years of accounting, I’m yet to see one actually produce a return. Also, in my experience, a lot of people confuse the meaning of tax deduction and believe it to be a 100% reduction in tax rather than a reduction in taxable income. There a lots of people with out financial know-how that would see it as a brilliant idea irrespective of potential return. So while I do agree with you that negative gearing purely for a tax deduction is stupid, I must say there is some merit to the comments in this article as many people lack good sense!
What a lot of hogwash. Anyone with a modicum of sense will never have negative gearing just to save tax. Even if the higher marginal tax rate is 48.5% (let’s call it for what it is, it is NOT a levy)a person will be 51.5% out of pocket. How will they make that up? What a stupid way to go.