array(1) { [0]=> &object(stdClass)#5655 (52) { ["id"]=> string(5) "16662" ["title"]=> string(120) "Is the market overheating; should ETFs take your fancy, and what’s happening to the low and middle income tax offset? " ["alias"]=> string(114) "is-the-market-overheating-should-etfs-take-your-fancy-and-what-s-happening-to-the-low-and-middle-income-tax-offset" ["introtext"]=> string(156) "

On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the latest in equities, property investing and super.

" ["fulltext"]=> string(1063) "

Steve Waters, director of Right Property Group, chats about the latest in property, including the much-talked-about use of macro-prudential measures to cool the rapidly expanding market.

RMIT’s senior lecturer of finance, Dr Angel Zhong, talks about soaring ETFs, what they are and why young investors, in particular, are jumping onboard their latest surge. Dr Zhong also takes a closer look at BNPL platforms.

And lastly, tax and super guru Timothy Munro gives his thoughts on Prime Minister Scott Morrison’s choice to backtrack on any further SG changes and looks at the impending end of the low and middle income tax offset.

Have a question for our experts? Get in touch at [email protected] and you might get featured on the next episode.

" ["checked_out"]=> string(1) "0" ["checked_out_time"]=> string(19) "0000-00-00 00:00:00" ["catid"]=> string(3) "302" ["created"]=> string(19) "2021-04-20 05:52:58" ["created_by"]=> string(4) "2404" ["created_by_alias"]=> string(0) "" ["state"]=> string(1) "1" ["modified"]=> string(19) "2021-04-20 07:31:39" ["modified_by"]=> string(4) "2357" ["modified_by_name"]=> string(12) "Erika Sauler" ["publish_up"]=> string(19) "2021-04-20 07:06:30" ["publish_down"]=> string(19) "0000-00-00 00:00:00" ["images"]=> string(233) "{"image_intro":"images\/podcasts\/Angel_Zhong_Steve_Waters_Timothy_Munro.jpg","float_intro":"","image_intro_alt":"","image_intro_caption":"","image_fulltext":"","float_fulltext":"","image_fulltext_alt":"","image_fulltext_caption":""}" ["urls"]=> string(121) "{"urla":false,"urlatext":"","targeta":"","urlb":false,"urlbtext":"","targetb":"","urlc":false,"urlctext":"","targetc":""}" ["attribs"]=> string(855) "{"article_layout":"","show_title":"","link_titles":"","show_tags":"","show_intro":"","info_block_position":"","info_block_show_title":"","show_category":"","link_category":"","show_parent_category":"","link_parent_category":"","show_associations":"","show_author":"","link_author":"","show_create_date":"","show_modify_date":"","show_publish_date":"","show_item_navigation":"","show_icons":"","show_print_icon":"","show_email_icon":"","show_vote":"","show_hits":"","show_noauth":"","urls_position":"","alternative_readmore":"","article_page_title":"","video_url":"","channel_id":"UCLBR-2LtTtui_WiRuEfW3qA","send":"0","test":"0","schema_active":"0","schema_name":"","schema_description":"","schema_thumbnailUrl":"","schema_uploadDate":"","schema_duration":"","schema_contentUrl":"","schema_embedUrl":"","comments":"1","readingDiff":"3","canonical_link":""}" ["metadata"]=> string(68) "{"robots":"","author":"","rights":"","xreference":"","metatitle":""}" ["metakey"]=> string(82) "market, overheating, etfs, fancy, what’s, happening, middle, income, tax, offset" ["metadesc"]=> string(200) "On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the latest in equities, property investing and super. Steve Waters, director of Right Property Group, " ["access"]=> string(1) "1" ["hits"]=> string(2) "14" ["xreference"]=> string(0) "" ["featured"]=> string(1) "0" ["language"]=> string(1) "*" ["readmore"]=> string(4) "1063" ["ordering"]=> string(1) "0" ["category_title"]=> string(7) "Podcast" ["category_route"]=> string(17) "resources/podcast" ["category_access"]=> string(1) "1" ["category_alias"]=> string(7) "podcast" ["published"]=> string(1) "1" ["parents_published"]=> string(1) "1" ["lft"]=> string(2) "82" ["author"]=> string(12) "Robyn Tongol" ["author_email"]=> string(33) "[email protected]" ["parent_title"]=> string(9) "Resources" ["parent_id"]=> string(3) "300" ["parent_route"]=> string(9) "resources" ["parent_alias"]=> string(9) "resources" ["alternative_readmore"]=> NULL ["layout"]=> NULL ["params"]=> object(Joomla\Registry\Registry)#5656 (3) { ["data":protected]=> object(stdClass)#5661 (95) { ["article_layout"]=> string(14) "momentum:newne" ["show_title"]=> string(1) "1" ["link_titles"]=> string(1) "1" ["show_intro"]=> string(1) "0" ["info_block_position"]=> string(1) "0" ["info_block_show_title"]=> string(1) "1" ["show_category"]=> string(1) "1" ["link_category"]=> string(1) "1" ["show_parent_category"]=> string(1) "0" ["link_parent_category"]=> string(1) "0" ["show_associations"]=> string(1) "0" ["flags"]=> string(1) "1" ["show_author"]=> string(1) "1" ["link_author"]=> string(1) "0" ["show_create_date"]=> string(1) "0" ["show_modify_date"]=> string(1) "1" ["show_publish_date"]=> string(1) "1" ["show_item_navigation"]=> string(1) "1" ["show_vote"]=> string(1) "1" ["show_readmore"]=> string(1) "1" ["show_readmore_title"]=> string(1) "1" ["readmore_limit"]=> string(3) "100" ["show_tags"]=> string(1) "0" ["show_icons"]=> string(1) "1" ["show_print_icon"]=> string(1) "1" ["show_email_icon"]=> string(1) "1" ["show_hits"]=> string(1) "1" ["record_hits"]=> string(1) "1" ["show_noauth"]=> string(1) "0" ["urls_position"]=> string(1) "0" ["captcha"]=> string(0) "" ["show_publishing_options"]=> string(1) "1" ["show_article_options"]=> string(1) "1" ["save_history"]=> string(1) "1" ["history_limit"]=> int(10) ["show_urls_images_frontend"]=> string(1) "0" ["show_urls_images_backend"]=> string(1) "1" ["targeta"]=> int(0) ["targetb"]=> int(0) ["targetc"]=> int(0) ["float_intro"]=> string(4) "left" ["float_fulltext"]=> string(5) "right" ["category_layout"]=> string(14) "momentum:newne" ["show_category_heading_title_text"]=> string(1) "1" ["show_category_title"]=> string(1) "1" ["show_description"]=> string(1) "0" ["show_description_image"]=> string(1) "0" ["maxLevel"]=> string(2) "-1" ["show_empty_categories"]=> string(1) "0" ["show_no_articles"]=> string(1) "1" ["show_subcat_desc"]=> string(1) "1" ["show_cat_num_articles"]=> string(1) "0" ["show_cat_tags"]=> string(1) "1" ["show_base_description"]=> string(1) "1" ["maxLevelcat"]=> string(2) "-1" ["show_empty_categories_cat"]=> string(1) "0" ["show_subcat_desc_cat"]=> string(1) "1" ["show_cat_num_articles_cat"]=> string(1) "1" ["num_leading_articles"]=> string(2) "14" ["num_intro_articles"]=> string(1) "0" ["num_columns"]=> string(1) "0" ["num_links"]=> string(1) "0" ["multi_column_order"]=> string(1) "0" ["show_subcategory_content"]=> string(2) "-1" ["show_pagination_limit"]=> string(1) "0" ["filter_field"]=> string(4) "hide" ["show_headings"]=> string(1) "1" ["list_show_date"]=> string(9) "published" ["date_format"]=> string(0) "" ["list_show_hits"]=> string(1) "0" ["list_show_author"]=> string(1) "1" ["orderby_pri"]=> string(4) "none" ["orderby_sec"]=> string(5) "rdate" ["order_date"]=> string(9) "published" ["show_pagination"]=> string(1) "2" ["show_pagination_results"]=> string(1) "1" ["show_featured"]=> string(4) "show" ["show_feed_link"]=> string(1) "1" ["feed_summary"]=> string(1) "0" ["feed_show_readmore"]=> string(1) "0" ["sef_advanced"]=> int(1) ["sef_ids"]=> int(1) ["custom_fields_enable"]=> string(1) "1" ["show_page_heading"]=> NULL ["layout_type"]=> string(4) "blog" ["menu_text"]=> int(1) ["menu_show"]=> int(1) ["page_title"]=> string(71) "Invest Money - Strategies and Tools for your Investment Goals | nestegg" ["menu-meta_description"]=> string(180) "Let us help you decide how you want to invest your money on. Learn the best strategies in investing and options like cryptocurrency, bonds, mutual funds, property and stock market." ["secure"]=> int(0) ["page_description"]=> string(7) "nestegg" ["page_rights"]=> NULL ["robots"]=> NULL ["page_heading"]=> string(71) "Invest Money - Strategies and Tools for your Investment Goals | nestegg" ["access-view"]=> bool(true) } ["initialized":protected]=> bool(true) ["separator"]=> string(1) "." } ["displayDate"]=> string(19) "2021-04-20 07:06:30" ["slug"]=> string(120) "16662:is-the-market-overheating-should-etfs-take-your-fancy-and-what-s-happening-to-the-low-and-middle-income-tax-offset" ["catslug"]=> string(11) "302:podcast" ["link"]=> string(133) "/resources/podcast/is-the-market-overheating-should-etfs-take-your-fancy-and-what-s-happening-to-the-low-and-middle-income-tax-offset" ["image"]=> string(58) "images/podcasts/Angel_Zhong_Steve_Waters_Timothy_Munro.jpg" ["image_alt"]=> string(0) "" } }

Latest Podcast

Is the market overheating; should ETFs take your fancy, and what’s happening t...

Resources

There is $17.5 billion in lost and unclaimed super across ...

Invest

What is negative gearing?

By Louise Chan

April 03 2018
Share

Invest

What is negative gearing?

By Louise Chan
April 03 2018

Here’s a basic guide to negative gearing to help investors better understand the ‘tax’ strategy.

What is negative gearing?

By Louise Chan

April 03 2018
Share

Here’s a basic guide to negative gearing to help investors better understand the ‘tax’ strategy.

The requires investors to accept income loss in exchange for tax benefits, but while it is often linked to real estate investments, the approach is not limited to properties.

Here’s a quick guide to explain why investors still consider the strategy in spite of income loss.

What is ‘gearing’?

The term ‘gearing’ refers to the strategy of borrowing money to purchase an investment, regardless of its asset class. However, investors may link gearing strategies to real estate investments because it is often used to purchase rental properties.

There are three ways to gear investments: positive, neutral and negative. Their difference lies in how income compares to the loan interest rate.

That is:

Positive gearing refers to an investment property whose net income exceeds the loan interest rate which, in turn, creates profit for the investor.
Neutral gearing refers to when net income and loan interest payments break even.
Negative gearing is when expenses and interest payments exceed the income from the purchased investment(s), resulting in loss of income

Investors should not confuse gearing strategies with margin loans. While both involve borrowing money to invest in assets, the borrower retains ownership of the geared asset, whereas margin loans require using the purchased asset as security.

Why do investors negatively gear investments?

Deliberately designing investments to result in income loss may sound strange—but why do investors apply this strategy, especially in rental properties?

This is because the Australian Taxation Office (ATO) allows individuals to offset tax payables using the income loss from investments, whether in part or the full amount.

Applying the net rental property loss to a person’s tax return can lower tax obligations for the financial year. Any excess loss may still be applied to the next income year. The tax benefits of negative gearing alone make it a worthwhile strategy to some investors.

Negative gearing in real estate

The strategy is often used in rental properties because most investors take out loans to purchase properties.

Rental income and expenses are important in negatively geared investments. Consider Bill who takes out a $350,000 loan with a six per cent annual interest rate to buy a tiny apartment near the edge of the business district. This gives Bill a $21,000 interest payment obligation yearly.

Bill settles for a $280 weekly rent because the size and location of his property make it difficult to entice tenants. This gives him a $14,560 annual rental income, which has a $6,440 income loss.

According to ATO rules, Bill is allowed an offset on tax payables using the stated income loss. This loss could bring his tax payable to nil. If there is still excess income loss, it may be used in the next income year.

But is there a bright side to Bill’s losing investment? It depends.

Bill would have to rely on unrealised capital growth when the value of his real property increases. If the real estate market conditions increase the property’s value to $400,000 at the end of the income year, then Bill would have made a $50,000 unrealised gain.

Negatively geared equities and securities portfolio

Investment portfolios composed of shares, bonds and funds may also be negatively geared if income from dividend, coupon and distribution payments falls short of the interest payments for the loan.

Investors may do this by purchasing shares or funds that have decreased in value, whether as a result of market volatility or revaluation after dividend or distribution payments, or bonds with lower coupon rates.

Changes to ATO rules as of 2017

ATO allowed individuals to claim tax offsets for expenses incurred from owning a negatively geared property. However, the tax office believes that its generous system has been used to dodge taxes.

As of July 2017, the ATO enforced tighter restrictions against claims on depreciation deductions that apply to plant and equipment items in residential and rental real estate. The tax office has also disallowed offsets for travel expenses incurred for any transaction relating to the property, such as rent collection and inspection.

This means negatively geared real property investors may have to offset their income loss with a smaller amount, resulting in a higher tax payable.

ATO may continue to impose tighter restrictions to crack down on people who use negative gearing as a way to dodge taxes.

It’s best for investors to consider their personal circumstances and discuss plans for negatively geared investments with a financial expert before taking out a loan.

This information has been sourced from the Australian Taxation Office.

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates

Rate the article

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise Chan

Property

New home sales continue to soar in March

A strong level of building activity is expected in 2021 and 2022, given a strong spike in home sales during the year to March. ...Read more

Property

HomeBuilder extension announced

One of the government’s most successful schemes, HomeBuilder, has been extended, bringing the total level of expected government support for the construction sector to $2.5 billion. ...Read more

Property

Policy failures see houses become unattainable for young Australians, minister says

Australia’s booming house prices are the result of the government’s failed policies, with the younger generation now unable to afford what their parents could, a minister has said. ...Read more

Property

House prices to grow by 25% over 3 years

New research is predicting a large gain in property prices of around 25 per cent through to the end of 2023, driven mainly by low interest rates. ...Read more

Property

Strict cap on short-term rentals delayed following criticism

Following widespread criticism from councils and online rental companies, the introduction of NSW’s planned holiday rental code of conduct has been pushed back by three months. ...Read more

Property

Melbourne becomes Australia’s 2nd most affordable rental market

While most capital cities saw house rents soar to new record highs over the first quarter of 2021, Melbourne continued to lag behind – becoming the second most affordable capital city to rent in Aus...Read more

Property

Why home buyers are now more open to high-priced properties

Buyers are more likely to spend more to secure a property as their preferences shift towards bigger spaces with higher price tags, recent data has shown. ...Read more

Property

Government brushes aside RBA’s debt blowout warning

The government said it is not concerned about the RBA’s warning that the financial system could be rocked if there’s a debt blowout, in fact it is “very pleased” that confidence levels are lea...Read more