Gearing to reduce tax and build assets for retirement

Borrowing money to invest into income producing assets is one way to both achieve a tax deduction and buy assets that will have an income for retirement.

The benefits of borrowing for an investment are

  • The interest cost is tax deductible each financial year of the loan,
  • The income and the asset value should rise over time creating a capital gain that can be realised on the asset sale in the future,
  • Other tax credits can accrue, for example franking credits and depreciation allowances,
  • The repayment of the capital is not tax deductible but eventually the lower debt means you have less interest costs and the investment eventually becomes profitable. That means the income exceeds the investment expenses.
  • Eventually as the asset is paid off the income can be used to finance another loan in a new asset or use the income to finance your retirement.

Investing does require you to consider the risk of the investment. Risk can be reduced by diversifying across many investments and many classes of investments which mainly fall into the category of either property or shares.

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