The case study compares the tax benefits of negative gearing into property versus shares, assuming that capital growth and income between the two investment options are equal. Over 10 years, Johnston found that gearing into shares is more tax effective than gearing into property. The big tax deductions on property come in the first few years, where investors claim depreciation on items such as carpet and furniture. But over time, the tax deductibility of an investment property falls. Shares in comparison become more tax effective over time as dividends and franking credits increase in line with the value of the investment.
Loan is interest only for both options.
Company tax rate 30 per cent, marginal tax rate of 48.5 per cent. Not only has he multiplied his money seven fold, Lane's success has allowed him to retire early - years before he ever imagined. Margin lending has changed our lifestyle. We've gone from having to work to being financially independent. At the moment, Lane's portfolio is geared to around 27 per cent, which is considerably lower than his maximum gearing ratio of 50 per cent.