If you could add half a million dollars to your asset base for $100 per week after tax, I’d argue you’d jump at the opportunity. The Australian taxation system is designed to reward property investors, particularly those investing in new property, for providing housing to a growing population. The rationale is that investment reduces the burden on government supplied housing safety nets. The two critical tax incentives for property investors are:

  • Negative Gearing: If your costs (interest and rental expenses) are higher than your rental income, you can claim the difference as a deduction from your income.
  • Depreciation: For tax purposes, the decline in value of the building component (structure and fittings) of a property can be offset against your income (though it’s not an out of pocket cost).

Before I get into the costs of ownership, what about all that talk of removing negative gearing tossed around Canberra in the last few years?

Team Shorten

Labor has toyed with the idea of removing negative gearing for an established property, arguing that it incentivises the wealthy at the expense of the middle class. The assertion runs contrary to the fact that nearly half of Australian investors have taxable incomes below $80,000.

Labour thinks all people who negatively gear are property barons to be fleeced

Federal Treasurer, Scott Morrisson

Why retain the incentive for a new property? The construction of a new property adds to housing supply, and thereby reduces upward price pressures in a housing market. The folly of limiting negative gearing to a new property is that it would likely make it harder for first home buyers to purchase a newly constructed home given that they’d now be competing with investors in a far more narrow market.

Team Turnbull

The Liberals have opposed moves to affect changes to negative gearing with Turnbull arguing:

There is a tendency for people, particularly on the left, to overlook the fundamental reality which is that the reason housing affordability has deteriorated, is just because demand has been consistently exceeding supply*

At most, we might see a cap on the number of properties that you’re allowed to negatively gear or a limit on allowable deductions.

What’s this mean for you?

Under Team Shorten’s plan, to benefit from negative gearing you’d need to invest in new property. If the Member of Wentworth is successful in securing another term in 2019 – assuming he survives the likely coup d’etat in the interim (my money is on a Bishop or Abbot run) –  it’s business as usual for you.

Now to the fun stuff, how much does it cost the typical Australian to invest in property?

Case Study

You earn $80,000 per year and buy a $500,000 property under the following assumptions:

  • You invest $80,000 for a 10% deposit ($50,000), stamp duty ($20,000), mortgage insurance ($8,000) and solicitor’s fees ($2,000)
  • You borrow $450,000
  • Loan is on interest only terms

The table below breaks down your income and tax deductions applicable to the scenario:

 Holding cost - table 1.png

Pre-tax out of pocket costs

Rent – Interest – Rental Expenses = $10,000

Your total income, which combines your wage and rent, increases to $102,500 against deductions totalling $42,500. The result is you pay income tax on $60,000, as shown in the table below, thereby reducing your tax obligation.

 Holding cost - table 2.png


For $57 per week after tax, you can increase the size of your asset base by $500,000! The more you earn, the more deductions you can claim, and the lower your post-tax holding costs. If your investment increased at 5% per annum over a ten year period, you’d end up with a capital gain of a tick under $315,000  or $285,000 after costs. That’s an additional $28,500 in wealth per annum – more than twice what the typical household saves!


*retrieved from https://www.theaustralian.com.au/national-affairs/treasury/liberals-seek-action-on-negative-gearing/news-story/4ffd099822d45da00a938c3109e4cc3f