A Plain English Guide to Leverage for Share and Property Investors
by N E Renton (Wrightbooks, Second Edition, 2000)
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It analyses the advantages and disadvantages of borrowing in order to invest in ordinary shares and real estate. Both positive and negative gearing are examined. The book also deals with the use of derivatives such as options, warrants and futures for leverage.
This book is now in an updated and expanded second edition which takes into account the recent income tax and capital gains tax changes and the introduction of the goods and services tax.
The author looks at possible further changes to the tax rules and their implications. Superannuation and negative gearing as tax shelters are compared. Devices such as margin lending and endowment warrants are explained.
Much that is written about negative gearing by both proponents and critics is misinformed. This work, produced from an independent perspective, puts the record straight.
Designed for everyone from beginners to experienced investors the book includes an extensive Glossary and a Foreword by Henry Bosch.
272 pages 9781876627386 RRP $A29.95
Negative Gearing is the situation when an investment such as property or shares is purchased with the assistance of borrowed funds and where the rental or dividend income (after the deduction of expenses) is less than the interest commitment in the course of a financial year.
For tax purposes this negative net income can then be offset against any positive income from other sources.
Some unsolicited comments on the first edition by an ordinary reader:
"Just a quick note to say thank you for your lucid and reflective book, Negative Gearing (Wrightbooks, 1998).
"As a PhD in English Literature, I now understand that negative gearing does not refer to cycling backwards. And as a mortgagor with a young family, it gave me excellent information on which to base my thinking.
"I especially admired your willingness to reflect morally on your subject, as this is so quickly sidestepped by most advisors.
"I have long wondered whether negative gearing amounted to tax evasion for the already well-off; now I have some real understanding of the issues and can make a more informed response to my gut reaction."
Negative gearing should never be an objective in itself. It makes sense only where an investment return is greater than the cost of borrowing. Furthermore, there is no point in borrowing by investors who have spare funds on deposit.
Q. The second edition of this book was published in 2000. It is now 2006. Is it not time for a new edition?
A. At this stage the current 2000 edition is not out of date, although obviously the tax rates in the appendices have changed. However, the principles explained in the book are still the same.
Those investors keen to know more about tax should have a look at Income Tax and Investment.
They might also find Family Trusts of interest.
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