03/11/2009 - Negative gearing for Australian Expatriates

Negative Gearing

This week I thought I would discuss briefly negative gearing and how it applies to expats living overseas.

What is Negative Gearing?

Negative gearing is basically when an asset such as an investment property is purchased and the income from that property (rent) is not enough to cover the holding costs (interest on loan, rates, maintenance) so that an annual deficit or negative is created. Essentially, at the end of year 1 the costs of the property outweigh the rental income received from the property.

If you lived in Australia earning AUD then you could potentially write this loss off against your salary reducing the income tax payable. Eg, if you had a salary of $80,000 and the loss from your rental properties was $10,000 then your taxable income would be $70,000 thus resulting in less income tax.

Negative Gearing as an Expat:

If you are an expatriate earning overseas income and therefore not paying tax in Australia, the loss or negative from your investment property has nothing to offset against. Importantly, and this is often overlooked by expatriates on their return, these losses can accumulate while you are away so on your return you can use them to offset your income and pay less income tax.

As always, any questions do not hesitate to call or email.