Negative Gearing - New concept to a lot of people

Not many countries have negative gearing. And it is a foreign concept to many that I have spoken to.

The general idea is that losses made from an investment can be used to reduce taxation from salary.
Why make losses, most people ask ?
Why would the government allow that ?

I guess, as with most investment around the world, you expect a short term loss, then a break even point, then a longer term gain.

Like when you buy a new car, the first couple of years, depreciation is the highest. You make the most losses. Though only a small percentage of cars can be considered investments. Not a good analogy.

Say  Shares. When you buy shares, you make a loss because of frictional costs (trading costs, fees, etc). And then you have to wait for the share price to rise, or wait for dividend, before you break even and then make profits later on as prices go higher than inflation. Now imagine if you are borrowing money to buy shares. The initial "loss" will be higher.

When  you buy a property, it is also usually with mortgage. How much do you need the property to rise before you can sell it for a profit ? Think about the fees, stamp duties, interest payments, etc.
People are betting on the fact that capital growth of the property in time exceeds the interest and inflation rates and it becomes a profit in future.

Negative gearing allows investors to use the losses in the first few years to offset their income (even if it is from employment). Most countries allow the losses to offset FUTURE profits (from capital gains tax, or from future rental profits) but countries allowing negative gearing lets you offset those losses NOW.

In Australia, negative gearing is not just for properties, you can also use negative gearing on shares, as far as I know.

Is it for me ?

I am not a financial advisor, so don't take my words with much weight.

Negative gearing is probably useful if you have other income to offset against, so as to reduce taxation.
Maybe a steady employment income.

But if your income is not stable, it may not be worthwhile.

Updates - Mid 2013 - 5 years on...

I guess I owe all of you some updates over the last 3 years.

 Work 

Work has been largely the same. Some restructuring in the company, some retrenchments,some people leaving. But largely business as usual.

My territory has changed and it is a shame I am not going to Perth anymore. However, I get to travel to Brisbane and New Zealand now. Hope to be able to enjoy that.

Still been able to travel around regional areas in NSW and ACT. Visiting sleepy country towns and all. Always is nice to drive around a bit and get out of the office.

Also been trying to do side-lines... See how it goes.


Life

I have bought my own 3 bedroom townhouse, in a nice suburban complex. Nice and friendly neighbours with lots of get-together and parties.

More friends and more events and things to do on the weekends - Birthday parties, catch up sessions, etc.

Haven't been going to the beach a lot in the last year. Been staying home more. Not sure why, maybe just being lazy.



Car

Sold my old car (Ford Focus) and bought a new one (Hyundai ix35) about 3 years ago. I think my previous LS experience took place when I already have my new car.

Haven't done any 4WD or much off road with it though.

I am now sitting in the service centre while my car is being serviced. Doing my work, enjoying free coffee and blogging.. It is a Friday after all..



To Do List

In the short future, looking at getting a better paid job. Getting an investment property. Though in no particular order. Maybe also starting a little side business of some sort.

But I guess, most of the plans is to build a financially secure future and get to enjoy life a little more.

Maybe pick up more sporting activities.

Come back.....

Ok. I think I want to make a comeback... Probably as a way to force myself to compose creatively, not just writing proposals for work.

I hope not everyone has tuned out of my blog after 3 years...

I will be back.