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To take advantage of the negative gearing, the tax deductions available will need to be offset against taxable income. Generally this will necessitate the ownership of the property asset to be either in an individual or a partnership/tenants in common.
A summary of the principal advantages and disadvantages of these structures, is as follows:
Individual |
Advantages |
Disadvantages |
Easy to comprehend
No establishment time and cost
Individual has ultimate control
Taxed at marginal rates of individual
Losses can be offset against other income
No reporting requirements other than tax return
No fringe benefits tax on benefits to owners
Option to use the 50% discount on Capital Gains on sale of assets held in excess of 12 months |
Limited flexibility to split taxable income between family members or other persons
Ownership period limited to life of individual
Taxed at marginal rates of individual – disadvantageous if taxable income level is high |
Partnership |
Advantages |
Disadvantages |
Relatively simple to understand
Minimal reporting/disclosure requirements
Ability to split income between partners based on proportionate interest in the property
Subject to tax rate of individuals
Tax losses are distributed to the partners
Losses can be offset against partners' other income
Capital gains tax applies to individual partners' fractional interest, therefore option to use 50% discount rate is available. |
No legal liability protection
Limited ability to split income between family members
Subject to tax rate of individuals – disadvantageous if taxable income level is high
May be governed by Partnership Act if it is a partnership |
There are other structures that may be suitable, including a company, discretionary trust or a unit trust. However, specific advice should be obtained on the suitability of these structures from your professional advisors.
Ownership of property assets
To take advantage of the negative gearing, the tax deductions available will need to be offset against taxable income. Generally this will necessitate the ownership of the property asset to be either in an individual or a partnership/tenants in common.
A summary of the principal advantages and disadvantages of these structures, is as follows:
Individual |
Advantages |
Disadvantages |
Easy to comprehend
No establishment time and cost
Individual has ultimate control
Taxed at marginal rates of individual
Losses can be offset against other income
No reporting requirements other than tax return
No fringe benefits tax on benefits to owners
Option to use the 50% discount on Capital Gains on sale of assets held in excess of 12 months |
Limited flexibility to split taxable income between family members or other persons
Ownership period limited to life of individual
Taxed at marginal rates of individual – disadvantageous if taxable income level is high |
Partnership |
Advantages |
Disadvantages |
Relatively simple to understand
Minimal reporting/disclosure requirements
Ability to split income between partners based on proportionate interest in the property
Subject to tax rate of individuals
Tax losses are distributed to the partners
Losses can be offset against partners' other income
Capital gains tax applies to individual partners' fractional interest, therefore option to use 50% discount rate is available. |
No legal liability protection
Limited ability to split income between family members
Subject to tax rate of individuals – disadvantageous if taxable income level is high
May be governed by Partnership Act if it is a partnership |
There are other structures that may be suitable, including a company, discretionary trust or a unit trust. However, specific advice should be obtained on the suitability of these structures from your professional advisors. |
