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How Does Negative Gearing Work For Australian Expatriates? Cash And Non-Cash Deductions



If you’ve paid attention to the news lately, you’ve no doubt heard the term “negative gearing”. It has become somewhat of a political football – with the Liberal and National parties supporting current arrangements, while Labour intends to change it. But what exactly is negative gearing and how do the rules apply to Australian expatriates?

Negative Gearing 101

Negative gearing is a practice whereby an investor borrows money to purchase an income producing investment (i.e. a property or shares). It is a form of financial leverage, in which the investor expects the investment’s future growth to outweigh the cost of ownership.

Costs Of Owning A Property

These costs include cash and non-cash deductions. Cash deductions include interest on home loans, property management fees, body corporate fees, maintenance costs, insurance and more. Non-cash deductions include things like rental property depreciation, where you can claim tax deductions on the loss of value of any property improvements.

Can Australian Expatriates Negatively Gear?

According to the current negative gearing rules, if you are a non-Australian resident for tax purposes, you are allowed to negatively gear property investments. Put simply, as an expatriate, you can use any tax losses on Australian property investments to reduce your taxable income from other income sourced in Australia.

In addition, if your tax losses exceed your Australian sourced income, these losses can be carried forward to future tax years.

What About Share Market Investments?

If you are a non-resident for tax reasons, you can no longer negatively gear your share market investments. In fact, you cannot deduct any costs associated with investment in shares. However, you can add these costs to the cost base of your investment, to reduce future capital gains in tax liability.

How Can You Reap Tax Benefits?

A simple way to maximise the benefits you can attain through negative gearing and associated tax benefits is to maximise your depreciation deductions. These include the cash and non-cash deductions mentioned previously.

Have a question? Contact Shane Macfarlane.

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