Tax-free Income

Hi Scott

We recently moved to Dubai (yay -- tax-free income!). In six months our first investment property in Australia, worth $230k according to the bank, will be paid. We plan to come back to Australia in March next year to purchase another property. Should we buy another low-value but positively geared investment similar to the one we currently have, or should we go for a negatively geared CBD apartment in the hope of a capital increase?

Liz

Hi Liz,

If you don’t have any significant Australian income, then negative gearing is a terrible strategy (because it works by giving you a deduction on your income tax). Basically, you’d be taking all the risks a ‘normal’ negative gearing strategy delivers but with only half the reward, i.e. no tax benefit. Worse than that, if you’re non-residents in Australia for a period of time, you may not even benefit from the 50% CGT exemption when the property is eventually sold. All up, your best investment (once you’ve paid off that property) is to diversify your investments into the owning the world’s best businesses.

Scott