Facing Old Tax Debts: Tips for Business Owners and Individuals

Are There Tax Implications to Having a Negative Gearing? 3 Things You Should Know

by Ilkay Massink

Sometimes you might make an investment hoping that it will give you positive returns and instead encounter a non-favourable marketplace. For example, if you buy a rental house expecting that you will be paying a particular amount in mortgage, and the rent you receive for it falls below the mortgage payment, you have a negative gearing problem. 

Many people have a hard time accepting that they are facing the issue, and in the process of trying to rectify the imbalance, they lose business. With this in mind, it is also important to understand what happens to your taxes in the event of you getting into negative gearing. Here are three things that you should know about it.

Negative Gearing Will Affect Your Cash Flow

First, the negative gearing will have adverse effects on your cash flow. For example, if you are supposed to pay a certain amount in mortgage from your real estate investment, and the tenants are giving you less than that amount, you have to look for other ways of getting the missing amount of money. 

If you do not have solid measures to establish balance and get positive gearing, then you might end up making losses. It is best to get an expert to show you how to turn around the situation and create positive gearing. 

You Can Claim Your Losses on Taxes

When you have fully understood the negative gearing, you can now claim the tax relief that you deserve. Typically, the government expects you to pay tax based on the benefit that you are getting from your property. Therefore, when you are not gaining anything from a real estate investment, you do not have to worry about paying tax for the revenue.

However, you should talk to a taxation expert about your situation and get advice on how to handle your taxes.

Negative Gearing Affects Your Borrowing Power

Negative gearing will have an adverse effect on your borrowing capacity. For example, continuous negative reporting has an effect on your credit score. But, the good news is that your credit rating is what lenders look at when deciding whether they can lend you money or not.

It is best to hire a taxation expert to help you figure out what to do if you have realised that you have negative gearing. With their help, you will maximise returns on your investment and avoid getting into wars with the tax collection body. Contact a tax firm like Anthony Gigacz & Associates Pty Ltd to learn more.