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Negative Gearing Calculator
The Negative Gearing Calculator allows residential property investors to see the possible tax benefits of owning a negatively geared investment property.
$0
Your investment property is positively geared as your rental income can cover your expenses. You won’t be able to make any deductions from your taxable income and you’ll be paying $ 0.00 more in personal income tax per year.
Negative gearing calculator assumptions:
This calculator helps you establish whether your investment property is positively or negatively geared, and provides you with an estimate of your potential tax benefit.
Assumptions:
This calculator does not take into account annual rent increases, capital growth, or inflation. The total annual expenses is the total of the annual expenses inputted by the user and the 12-month interest cost produced by the calculator. For P&I loans, this interest cost is only applicable for the first 12 months of loan repayments. Principal repayments are excluded since they are not a tax-deductible expense.
Tax
The calculator uses the marginal tax rate as at 2021/2022 and does not take into account the Medicare levy, any other levies, or tax offsets. The tax benefit is the difference between personal income tax without an investment property, and personal income tax while holding an investment property.
Repayments
We assume that:
- repayments are made on a monthly basis;
- the interest rate charge is divided equally over 12 monthly payments; and
- interest is charged to the loan account at the same frequency and on the same day as the repayments are made.
Only your initial repayment amount is calculated and we assume that this repayment amount stays the same throughout the loan term. In reality, repayment amounts can change for a variety of reasons.
About our Negative Gearing Calculator
The Negative Gearing Calculator is designed to give residential property investors an estimate of the net income effect of owning an investment property. The calculator combines the cash operating revenue, rent, and the cash operating expenses, with the change in the amount of income tax paid to measure the net change in the investor's income due to the investment property.
Assumptions
When calculating the “Change in tax paid” only the marginal tax rates applicable to Australian residents are used. The calculator does incorporate the Medicare Levy of 1.5 percent but does not take any other factors which can influence the amount of tax paid, such as HECS contributions, any rebates, deductions or levies into account.
Building allowance is calculated for investment properties constructed after 18 July 1985. For buildings where construction began between 19/7/1985 and 15/9/1987 the building allowance is 4 percent of the construction cost, for 25 years after construction. For investment properties where construction began after 15/9/1987 the building allowance is 2.5 percent of the construction cost, for 40 years after construction.
Depreciation is calculated using the prime cost method. The following effective lives and depreciation rates are used:
| Item | Effective Life in Years | Depreciation Rate if purchased pre 27/2/92 | Depreciation Rate if purchased post 26/2/92 |
|---|---|---|---|
| Carpets | 10 | 12 | 17 |
| Curtains and drapes | 7 | 18 | 20 |
| Electric heater | 10 | 12 | 17 |
| Furniture and fittings | 15 | 9 | 13 |
| Hot water service | 20 | 6 | 13 |
| Linoleum and similar floor coverings | 10 | 12 | 17 |
| Microwave ovens | 7 | 18 | 20 |
| Refrigerators | 15 | 9 | 13 |
| Stoves | 20 | 6 | 13 |
| Washing machines | 7 | 18 | 20 |
The calculator does not take any additional laws relating to depreciation into account. For example, it is possible to treat items under $300 as expenditure and claim the full amount in the year of purchase. However, the calculator does not apply this rule, it depreciates the asset over its effective life.
Explanation of Terms
Annual Rental Income: Annual Rental Income is the rental income you receive for the year. It increases each year by the growth rate input in Potential Rental Growth per annum.
Annual Loan Repayments: Annual Loan Repayments is the total of loan interest payments for the year. It is assumed the loan has interest only payments.
Annual Cash Operating Expenses: Annual Cash Operating Expenses is the total of the tax deductible expenses associated with the property for the year. It increases by the growth rate input in Estimated Operating Expenses Growth per annum.
Cash Flow: is the cash revenues less the cash expenses. That is Annual Rental Income less the Annual Loan Repayments and Annual Cash Operating Expenses. This measures the amount of cash you will receive, if it is a positive number, or the amount you will have to pay over the year if it is a negative number.
Annual Depreciation: Annual Depreciation is the sum of the depreciation for the year based on the depreciable items entered. It is calculated using the prime cost method rather than the diminishing value method. For more information about how depreciation is calculated see the about page.
Building Allowance: Building Allowance is the tax deduction which can be made for this property. The rate at which building allowance can be claimed is determined by when the property was built.
Annual Tax Profit/Loss on Property: Annual Tax Profit/Loss on Property combines the cash flow generated by the property with the tax deductions to determine the profit or loss for accounting purposes. As depreciation and building allowance reduce taxable income, the profit or loss for accounting purposes will be lower than the cash flow generated.
Change in Tax Paid: The Change in Tax Paid measures the change in the amount of income tax the investor pays due to owning the investment property, compared to if they did not own the property. This is calculated based on the annual taxable income from other sources entered by the user. If the Change in Tax Paid is negative it means the user pays less tax. If it is positive it means the user pays more tax, relative to if they had not owned the investment property.
After Tax Profit/Loss on Investment: The After Tax Profit/Loss on Investment combines the cashflow associated with the investment property with the tax effect of owning the investment property to measure the net effect of the investment. A positive number indicates a profit, a negative amount indicates an after tax loss.
Note: the Negative Gearing Calculator is a guide only and should not be considered investment advice. Before taking out a margin loan you should consult your financial advisor.
