Why is an Investment Property a Good Strategy ?
Most people like property because they can see it, touch it and watch it grow in value over a period of time. If bought in the right area (location), it can offer good returns in capital growth in future years. Also, the depreciation, coupled with rental income, makes this method an easy way to get into property and make it an attractive proposition.
If you already own a property it makes getting into an investment property much easier as you can use the equity in your home as a deposit towards an investment property.
Negative Gearing is the situation when an investment such as property is purchased with the assistance of borrowed funds and where the rental income after the deduction of expenses (such as interest, bank fees, insurance and strata fees) is less than the interest commitment in the course of a financial year.
For tax purposes this negative net income can then be offset against any positive income from other sources. This is a very handy tool in minimizing tax.
Capital Gains Tax
Capital gains are the profits made on selling assets. Your primary place of residence is exempt from any capital gains tax. An investment property sold at a profit will attract a capital gains tax on the profit. The amount will be added to your regular income and taxed at your marginal rate. However, depending on your situation at the time of selling a property, the capital gains tax could be adjusted to be reduced by way of new investments put in place. You should get advice on this matter before selling so that you can structure it correctly.