Debt Management and Leverage

Negative gearing and capital gains

Reviewing capital gains

Assuming, you hold the property for 10 years and the tax rates, rent and interest rates do not change, you have a net after tax loss of $25,650 for the 10 years (in nominal terms not allowing for the time value of money).

You then sell the property after 10 years for $895,000 (after all expenses), and make a gross capital gain of $395,000 on the property sale.

‘Gross’ relates to the gain before any reductions have taken place.

You may have to pay capital gains tax on the gain (explained more in the Tax and Structures module).

Half of the gain will generally be tax free as you have held the property for more than 12 months.

Therefore the taxable capital gain will be $197,500.

Your total taxable income for that year will be your normal income of $105,000, plus the taxable capital gain of $197,500, which is $302,500. If you have other net income or a negative gearing loss for the year that would also adjust your taxable income but it is ignored here for simplicity.