Negative gearing

Negative Gearing

Negative gearing is a strategy used to generate short-to-medium-term tax losses from tax-deductible costs that are significantly higher than investment income. Furthermore, negative gearing entails exploiting this to raise transparency to possible benefits and losses.

Tax Advantages of Negative Gearing

Negative gearing is a popular approach since the resulting tax losses can reduce an investor's other taxable income, resulting in a lower annual income tax burden. The savings achieved could help to pay for the investment at least partially. It is important to understand that with time, taxable income could eventually exceed tax deductions, and hence property may cease to be negatively geared. There are several tax advantages associated with negative gearing including; when the cost of maintaining the property and paying the interest on the loan is higher than the rental income received, hence the negatively geared investment becomes eligible for tax deductions.

Impact of Policy Change on Property Market

The current debate seems to ignore the fact that about a third of transactions related to new houses. Hence any policy change that is implemented by the government will have different effects across such a diverse asset class. Such a situation would result in a very different range of services to the owners and potential owners (Berry, 2017).

Pros of Superannuation Savings

Superannuation savings are categorized as one of the most efficient tax ways of saving for retirement. The government’s primary concern revolves around the issue of people retiring without savings and hence the need to come up with adequate tax breaks around superannuation that would enhance saving habits in people.

Tax Benefits of Superannuation

Superannuation savings tend to result in reduced tax that an individual is subject to pay based on their level of income. Superannuation saving constitutes of 15% tax on the saving, which translates to a total of 30% that an individual saves that the government would have taken. When superannuation fund starts to pay upon the retirement scheme, there ends up no tax that is subject to pay on the income or on the capital that gains accrue to the assets that correlate to the pension (Moneymanagement.com.au, 2017).

Cons of Superannuation Savings

The cons of superannuation savings revolve around the issue of difficulty to access the funds before one is 55 years. Moreover, the government constantly tinkers leaving people cynical about the savings plan. Also, the administration of the funds tends to be time-consuming (Moneymanagement.com.au, 2017).

Addressing Legislative Risk

Addressing legislative risk would involve curbing interference by the government in the fund. Another way would include imposing very strict access policies to the funds until one is 55 years. Doing such reviews would make it more appealing and attractive to people.

Under-Insurance and Home Insurance

When a consumer is taking up household insurance policies, they reveal to the insurer the actual value of what they wish to insure. With regards to a home insurance claim, the insurer may at time decide that the amount that is the sum insured is insufficient to cover for the total value of the allegation. Under such circumstances, it is referred to as under-insurance. In Australia, more than 80% of the residents are underinsured for their home and contents. Their under-insured state implies that in case they lose everything in either a fire or flood incident, the total of the amount of cover they have will not be enough to adequately compensate them or afford to replace everything in their home (RAC WA - For a better WA, 2017).

Importance of Insurance Coverage

Research has it that only 4% of the total Australian population has satisfactory levels of life insurance covers. The majority of people in Australia do not have various insurance covers, for instance, disability cover, income insurance cover, and critical illness covers.

Encouraging Insurance Coverage

There are several and better legislations that would be implemented to help encourage people to consider taking insurance covers. For instance, personal insurance policies could be exempted from tax. Exempting personal insurance policies would encourage more people to cover themselves easily.

The Importance of Having a Will

A will is considered as one most crucial documents that a person will arguably ever produce. For the purpose of making sure that the person’s estate is administered according to their wishes, it is important to have a will and keep it up-to-date. A person’s life does not stay on hold, and for that reason, their will should also not be put on hold. It is therefore important that a will reflects any changes in an individual’s life based on personal circumstances, along with any similar legal and statutory developments (Findlaw.com.au, 2017).

Protecting Personal Interests with an Enduring Power of Attorney (EPA)

An Enduring Power of Attorney (EPA) is a legal document that can be used to protect an individual and what is precious to them. Having an EPA implies that only the people that the holder trust, their attorney, are required to make decisions about their life and their valued possessions such as money and property. The owner of the EPA is referred to as the donor. An EPA protects the donor from any financial abuse because they have chosen that person or people by themselves. Having an EPA increases the likelihood of one’s wishes being respected and any decisions made according to their best interest. An attorney acts in the best interests of their client and is actively involved in decisions. Hence one should be careful of the attorney they chose (Superseniors.msd.govt.nz, 2017).

References

Berry, M. (2017). Tweaking negative gearing will barely affect the housing market. [online] The Sydney Morning Herald. Available at: http://www.smh.com.au/comment/complexity-of-housing-market-makes-outcome-of-tinkering-uncertain-20160308-gnd82n.html [Accessed 7 Jun. 2017].

Findlaw.com.au. (2017). Why it’s important to keep your will up-to-date. [online] Available at: http://www.findlaw.com.au/articles/4904/why-its-important-to-keep-your-will-up-to-date.aspx [Accessed 7 Jun. 2017].

Moneymanagement.com.au. (2017). The pros and cons of superannuation and non-super income streams | Money Management. [online] Available at: http://www.moneymanagement.com.au/features/editorial/pros-and-cons-superannuation-and-non-super-income-streams [Accessed 7 Jun. 2017].

RAC WA - For a better WA. (2017). Tips to help protect against underinsurance | RAC WA. [online] Available at: https://rac.com.au/home-life/info/underinsurance-fact-sheet [Accessed 7 Jun. 2017].

Superseniors.msd.govt.nz. (2017). Enduring Power of Attorney - Protect your future - Super Seniors. [online] Available at: http://superseniors.msd.govt.nz/finance-planning/enduring-power-of-attorney/ [Accessed 7 Jun. 2017].