Thanks JamesGG and Dan C

The cost of the property is $10K - i think we both agree on this

because if I did not own the property - my income will be higher

But i end up sacrificing only $5850 as the tax is $4150 (governments contribution to me owning the asset), In other words, bank gets $10K as interest has to be paid, I pay $5,850 as i get this less in my pocket and the Government gets $4,150 less tax from me

The figures are

my income $100,000

less bank interest 10,000 (due to my negative gearing)

= my income $90,000

less tax which is now reduced by $4,150 due to reduction of income

I lose $5,850

So i am right = the cost of owning the property is $10,000 and not $5,850

I am not saying the cost is $10K to me or to the Government - I am saying "my income has gone down by $10K" - the cost of owning the investment property is $10K. Period.

Further more if i have to pay only $5,850 - first i have to earn $10,000 then pay the tax of $4,150 and then pay $5850 to the bank as interest. You see, to pay the $5850 (after tax cost) to the bank - i have to earn it first.

So when i go for dinner with my family the bill is $100 at the restaurant. So i have to earn $171 (approx) - then pay the tax of $71 and then pay to the restaurant owner. So the cost of my dinner is $171 and not $100.

As i cannot claim cost of dinner $100 in my tax return, the same way i cannot claim $5,850 in my income tax return = this is my after tax cost!

Since i cannot claim $5,850 (after tax cost) as a tax deduction, it is the same as going for dinner - so my dinner (owning the property) will cost me $5,850 plus - i have to earn $10,000 pay the tax @ 41.5% or $4,150 and then i will be left with a $5,850 which I have to pay to the bank and not be able to claim the $5,850 in my tax return.

In other words it costs 71% more (of $5,850 or $4150 or $71 for a $100 dinner) to go for dinner (or owning property) then what you pay to the restaurant owner (bank interest).

So the property has to go up by $10,000 in the year for me to come out quits or $100,000 (in today $'s) in the next 7 years @ rate of 3% cumulative inflation - which means that if my property purchased in 2003 is not already up by $100,000 i have lost $100,000?

If the dinner costs $100 each time - instead of losing $10,000 by owning the property - i can take my family for dinner $58.5 times and not 100 times because i have to pay the tax first - that is - before i can go for dinner.

So I am right - the cost of owning the property is $10,000 and not $5,850 - which means all those people in the seminars are lying! Is that right?

Manoj Abichandani

SMSF Specialist Advisor

SMSF Specialist Auditor

Tax Agent, FTIA, PNA, REA