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Negative Gearing


I’ve never been a fan of classic negative gearing. On the other hand, I’ve never ceased to promote the concept that it makes a great deal of sense to borrow money and pay the interest on that money for the purpose of increasing your income and presumably increasing your wealth.

Some time during the 1970’s I interviewed the teenage son of a friend and client who was “worried about tax”. When I asked him how much tax he was paying his answer was zero – because he didn’t have a job.

Within the financial community the terms “good debt” and “bad debt” are used with widespread misunderstanding of what those terms mean. The most popular would indicate that good equals tax deductible and bad equals non tax deductible.

In budgeting terms deficit budgeting at a personal level is absolutely acceptable if there is CERTAINTY about how the deficit can be recouped. At the very least a budget must be balanced (expenditure does not exceed income) over time except for those budgets which can be balanced by drawing down on savings or a lump sum derived from savings, inheritance or Gold Lotto.

It's best not to rely on the hopes of either of the last two of these. Negative gearing certainly lost its effectiveness when capital gains was introduced. One would hope that those who use the system can do their sums properly.