Negative gearing works by using a property investment to reduce your tax. It only works when there is already a considerable amount of tax being paid.
When negative gearing an investor will purchase a property with money borrowed from an institution. This borrowed money is to be paid back over time with interest. The property is them rented out to another party who are charged rent. This rent will be less than the total amount spent on repaying the loan and maintaining the property. As such, the property will be understood as an investment running at a loss. The loss means the investor’s income is lower, meaning they only pay tax on this lower income.
The practice of negative gearing is allowed in Australia, and allowed in some other countries, but often with restrictions. The practice is controversial, and sometime a political issue.
It is obviously not possible to live in the house that is negative geared, and it is not possible to combine a negative geared house with a first home buyer’s grant, which require you to live in the house. Negative gearing is for investment purposes only, with the tax situation being a benefit of this.
We recommend using a conveyancing solicitors in Sydney CBD when considering any property. Laws vary according to individual situations, and across state lines. Any Mistakes can be expensive. For Melbourne conveyancing services Sydney has groups like Sun and Wangs who are familiar with interstate legal proceedings. They are also a Queensland conveyancing law firm Sydney often uses. Make the best investment with the best advice.