gearing strategies

Gearing involves using borrowed funds to make investments.

Borrowing to purchase investments can be a tax effective way of creating wealth over the longer term. This is referred to as 'gearing'. Greater investment returns can be achieved provided that the total return produced by your geared investment portfolio exceeds the costs of the borrowing. Investment return refers to the combination of income produced (for example, interest, rent and dividends) and capital growth (the underlying value of the investment going up).

Gearing involves using borrowed funds to make investments in assets such as property, shares or an investment portfolio. Gearing can be attractive to investors because loan expenses and interest costs can often be claimed as a tax deduction.

Negative gearing is a term which applies when the cost of borrowing, i.e. loan interest and other costs, exceeds the income generated from the geared investments. The loss can normally be used as a tax deduction by the investor to offset other taxable income such as salary.