Hi All, I was redoing some numbers today and came across some figures that have confused me and was wondering if someone could clear things up for me.
The idea, as far as I know, is that negative gearing allows you to go to a lower tax brackets and is used for tax minimization purposes. Here are some numbers I ran, two scenarios, one where I am positively geared and another negative (I have a lot of cash on hand so both scenarios can be manufactured in my scenario)
Tax Rate 1 This is my current scenario
Salary $82,500.00
Investment -$15,000.00 (My loss last year across 3 properties)
Net Salary $67,500.00 (My untaxed salary after losses on property, so now my tax bracket becomes 4,650 plus 30c for each $1 over $37,000)
Base Tax $4,650.00
Taxable Income $30,500.00 30% (30c for every dollar
Income Tax $9,150.00
Tax Payable $13,800.00
TOTAL LOSS + TAX -$28,800.00
Tax Rate 2 Scenario 2
Salary $82,500.00
Investment $3,557.52
Net Salary $86,057.52 (So now my tax rates are $17,550 plus 37c for each $1 over $80,000)
Base Tax $17,550.00
Taxable Income $6,057.52 37%
Income Tax $2,241.28
Tax Payables $19,791.28
TOTAL LOSS + TAX -$16,233.76
So in these two scenarios, even though I have been able to reduce my taxes down by $5991.28, I still lose out via this strategy overall by $12556.
Can someone clarify how negative gearing is the better option? How this is a valid strategy? Am I missing something?
The idea, as far as I know, is that negative gearing allows you to go to a lower tax brackets and is used for tax minimization purposes. Here are some numbers I ran, two scenarios, one where I am positively geared and another negative (I have a lot of cash on hand so both scenarios can be manufactured in my scenario)
Tax Rate 1 This is my current scenario
Salary $82,500.00
Investment -$15,000.00 (My loss last year across 3 properties)
Net Salary $67,500.00 (My untaxed salary after losses on property, so now my tax bracket becomes 4,650 plus 30c for each $1 over $37,000)
Base Tax $4,650.00
Taxable Income $30,500.00 30% (30c for every dollar
Income Tax $9,150.00
Tax Payable $13,800.00
TOTAL LOSS + TAX -$28,800.00
Tax Rate 2 Scenario 2
Salary $82,500.00
Investment $3,557.52
Net Salary $86,057.52 (So now my tax rates are $17,550 plus 37c for each $1 over $80,000)
Base Tax $17,550.00
Taxable Income $6,057.52 37%
Income Tax $2,241.28
Tax Payables $19,791.28
TOTAL LOSS + TAX -$16,233.76
So in these two scenarios, even though I have been able to reduce my taxes down by $5991.28, I still lose out via this strategy overall by $12556.
Can someone clarify how negative gearing is the better option? How this is a valid strategy? Am I missing something?