To help accelerate their wealth creation aspirations, Stephen and Madeline wish to consider gearing as a wealth

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Section B

Question 5 Gearing and wealth creation

To help accelerate their wealth creation aspirations, Stephen and Madeline wish to consider gearing as a wealth creation strategy. At this stage they have not decided on the type of investment, be it an investment property or portfolio of shares; however, they wish to better understand a gearing strategy before proceeding.

Note: You are required to undertake independent research to answer the following questions.

  1. Explain the general deductions provisions of the Income Tax Assessment Act 1997 (Cth) (ITAA 97), including the basic principles, the positive limb that applies to the non-business taxpayer, plus the negative limbs and their effect on the ability to claim a deduction. (4 marks)
  2. Explain how Stephen and Madeline could use negative gearing as a strategy to assist in their wealth creation goals. Your response should briefly illustrate how negative gearing works, including reference to either an investment property or portfolio of shares. (4 marks)

Solution

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