Let’s work out what the tax payable on the capital gain is.
The tax you pay on your normal income of $105,000 of income is $24,592 (for 2021/22 tax rates), plus the Medicare levy.
The tax on the new taxable income of $302,500 is $106,792 (for 2022/22 tax rates), plus the Medicare levy. So the tax payable has gone from $24,592 to $106,792, therefore the tax on the capital gain component is $106,792 less $24,592 – which is $82,200, plus Medicare.
So the total capital gains tax is $82,200.
And your net gain after tax (but ignoring Medicare) is approximately $312,800, which is $395,000 (your gross capital gain) less tax of $82,200.
The net amount you have made after tax for the whole 10 years is shown in the table.
This will take you into a higher marginal tax bracket and you need to think about what else might be affected by this change (e.g. Medicare Levy Surcharge).
Please note, this is not a real life example. And it is only one way to evaluate a gearing strategy. Also, to avoid further complicating this calculation, we have not considered inflation, or the time value of money, which can have a significant impact on the outcomes.