Will negative gearing get a shake up?

108Sydney investors may wish to pay attention to talk surrounding negative gearing.

The Australian government may consider negative gearing with a fresh perspective, according to a May 3 release from the AAP.

This announcement could shake up borrowing opportunities that property investors often latch on to in order to build their wealth.

Reviewing negative gearing

There has been chatter recently about the future of negative gearing in Australia and the upcoming May budget has renewed the focus on the investment strategy.

“Government sources say one of the changes being considered by Treasury is the grandfathering of arrangements for existing investors, but limiting future access to negative gearing so only new properties will be eligible,” according to the AAP.

If this is the case, existing real estate investors in Sydney may be placed in a better position when it comes to utilising all possible borrowing strategies, compared to those who elect to buy property in the future.

Treasurer Joe Hockey has indicated little about a potential review of negative gearing rules, with a spokeswoman saying he “won’t comment on individual measures or what is being considered in the budget preparations”, noted the AAP.

What’s the impact?

Owners of rental properties may have them negatively geared if they have been bought with borrowed funds and despite net rental income, the overall result is a net rental loss.

This is caused by expenses and the like exceeding the rental income and drives home the importance of purchasing the right kind of Sydney investment property that will draw strong yields.

That said, negative gearing is still favoured by some as an investment strategy, as a deduction can presently be claimed for the total amount of the renal expenses when competing an annual tax return, notes the Australian Taxation Office.

A review could shake up exemptions and rethink negative gearing – investors should pay attention as Budget announcements loom.

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