2014 Federal Budget: Negative Gearing Back in Vogue
From 1 July 2014 the effective top marginal rate of tax on income over $180000 jumps to 49% from 46.5% currently, because not only is the ‘temporary’ budget repair levy coming in but the Medicare Levy of 1.5% is also slated to increase to 2.0%.
Whilst the move of 2.5% to 49.0% may not sound dramatic, to realise this is a 5.4% increase in proportionate terms makes in material (in accounting terminology at least!). And it may be more noticeable once you start paying the higher tax without the commensurate pay rise.
Another factor for salary packaging that is likely to affect some from 1 July 2014 is the increase in the superannuation guarantee, from the current 9.25% to 9.50%.
For very high income earners, there is going to be a noticeable drop in take-home pay, that just may slow down overseas holidays, luxury car purchases, and payments on the multi-million dollar home loan.
If there is money left over and an effective marginal tax rate of 49% including the Medicare Levy, negative gearing into shares and property will be on the agenda.
The strategy may be future property positioning, is to spend a bit less on the multi-million dollar home to leave enough over to negatively gear some investments and get some favourable tax refunds at 49% of every dollar.
At the top rate from 1 July 2014, $100,000 of negative gearing will provide a tax refund of $49,000.