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‘Negative gearing’ has been a topic of frequent debate. This flagpost summarises some of the estimates of the impact of negative gearing on the Commonwealth Budget.
Negative gearing is a strategy of borrowing to invest in an asset which generates income, but not enough to cover the investor’s costs (including interest and depreciation). Although this results in a loss for the investor, the loss can be used to reduce other taxable income, lowering the investor’s tax liability. A deliberate negative gearing strategy relies on an expectation that gains from selling the asset at a higher price will be greater, in after-tax terms, than the earlier losses.