Tax effective investment does not compound affordability issues and encourage get-rich-quick schemes

  • June 11, 2011
  • Ayda Shabanzadeh
  • Investment

There is more talk in the media about the appropriateness of the Government’s practice of providing tax-effective investment for property investors, with various banking experts concerned that negative gearing is compounding affordability issues and encouraging a “get-rich-quick” view among Brisbane property market investors.

While we are not necessarily opposed to or supportive of negative gearing, we most certainly encourage our property investment clients to take advantage of available tax benefits that are available to them through property investment. From our point of view, tax incentives mean more cash in the investor’s pocket at the end of the day, which we advise they use to make extra payments toward their mortgage to pay it off quicker.

We most certainly do not encourage the practise of investing in property solely for the purpose of claiming tax deductions, nor with the objective of getting rich quick.  Property is a long-term investment that allows the investor to achieve their goals for the future, and certainly not a method that makes money in the short term. Once an investment property is paid off, the investor can then reap passive income through rent, eventually selling the property when the time is right to, ideally, make a profit. We most certainly do not advocate the publicised practise of buying and developing, or buying and renovating, with the aim of making cash overnight.  The fact that a tax deduction is available is simply an added bonus in a long-term strategy for wealth creation.

The most important factor in property investment, we believe, is that our clients can invest in property to achieve their goals for the future, while continuing to live their preferred lifestyle today. And this is where affordability comes into play. We absolutely advise against property investment if significant changes need to be made to an investor’s lifestyle in order to make or hold the investments. Everyone has a different lifestyle  – some people like to travel frequently, others enjoy dining out regularly and still others find it important to afford private school fees for their children. We always encourage property investors to ask themselves whether an investment will mean they need to alter those aspects of their lifestyle that are important to them. If yes, then it’s not the right time to invest.

To summarise, we are all for tax-effective investment for Brisbane property investors, but there needs to be responsibility taken among the investors themselves. They need to understand that investing in the local property market is a long-term strategy to reach their goals, and that they are still able to do so while living well within their means.