My Take On Negative Gearing, Creating Wealth, And Paying Taxes
When it comes to buying and holding property for long term wealth there are two types of investors:
- Those that endeavour to save tax
- Those that endeavour to make money
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I’ll go for the latter every time. Why? Because if you’re paying tax, you’re making money!
In fact, my rule is: The bigger the tax bill, the happier I am!
I say that for two reasons:
- My tax bill directly correlates to the amount of income I’ve created.
- By paying tax, I allow my income to flow through to my tax return which means more income to leverage off when borrowing money from the bank.
Of course, I’ll make every effort to lean on my accountant to minimise the tax I need to pay but paying tax is a fact of life.
Negative gearing is a risky business
Negative gearing is a risky business because it relies on capital growth to offset the losses you make along the way.
If you’ve taken any interest in the property market over the last decade, you’ll know that banking on sustained capital growth is like heading to the casino and putting your life’s savings on black at the roulette wheel.
If any of the current political banter around phasing out negative gearing or reducing the capital gains tax discount comes to fruition, one thing is certain:
What’s next?
Things are going to get a whole lot worse for those betting on negative gearing to create long term wealth.
So what should you do? Focus on profitable investments. Sure, it’s harder to do. But if you stack a few of our property investing strategies together you should be well ahead of the game.
Or as ABC’s Andrew Robertson puts it:
Amidst the huffing and puffing in Canberra, one thing seems to be ignored. The first rule of investing is to make a profit on the investment. Tax breaks are secondary.
Check out Robertson’s full article here and discover a clearer picture on what might prevail.
How about you?
Which side are you on? Leave me a comment and let me know your take on negative gearing and our government’s latest policies. I’d love to hear!
Matt
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Yes Matt, It’s a simple idea, but one that so many people don’t get. I engaged an accountant to assist with my property goals. He continually gave me comparative rates to negative gearing verbally and in a SoA and pushed the downsides compared to shares etc. Unbelievable but true. So even when you spell it out, people you expect would understand still don’t get it. Anyway I now have a new accountant 🙂
Thanks for the comments David and glad to hear you have control of your own destiny with this. It’s important to take professional advice on board but should be from people that share the same investing acumen, concepts and approach. I had to go through 3 accountants before realising they weren’t on the same page and ended up having to go through an interview process (with 5 shortlisted accountants) to find the one that met my needs. Onwards and upwards David 🙂