The negative gearing calculator can help demonstrate why investment decisions should never be driven solely by tax considerations, even though income tax and capital gains taxes may form a significant component of investment performance.
This is especially so when an investment is financed by a loan, with the increase in risk that that involves.
Hence the importance of measuring the tax and cash flow outcomes of investment decisions.
To learn about the pros and cons of negative gearing for property investment see here: The Pros and Cons of Negative Gearing in 2024
Simple spreadsheet negative gearing calculator – cut to the chase
To compare investment proposals which have a loan element, put different sets of assumptions into the negative gearing calculator spreadsheet, to project results.
Manipulating risk and return assumptions enables you to find a calculated level of comfort before spending hard-earned dollars on an investment proposal.
So this spreadsheet works as a smart back-of the-envelope decision tool. It’s useful as a quick guide to the financial arithmetic involved in a geared investment decision, where the investment costs are tax deductible.
The spreadsheet is deliberately very simple, so that the cause, effect and projected results can be very clearly understood, without clouding the issue with technical fine tuning, or minute analysis of arcane tax provisions which don’t have a major impact on the outcome.
The spreadsheet can be used to evaluate the effect of any tax-effective leveraged investment, such as shares, property, rental property etc.
Use of the calculator assumes you have a reasonably well-informed idea of income and expense profiles, and prefer a fast-but-good estimate over a slow-but-highly-accurate kind of analysis.
The spreadsheet is basically a single investor, single investment model.
The effect of CGT is simplified (guesstimated) by entering a single percentage rate assumption; there is no detailed breakdown of potential CGT outcomes. Loan funding is factored on an interest-only basis
Overall benefits? Speed and simplicity. For advisors, it’s a simple one-page colour demonstartion which can be handed to a client or filed as a working paper.
This simple Negative Gearing Spreadsheet calculator is a convenient way to assess risk and return, because all the important assumptions can be entered quickly.
Loan funding – being one of the most important risk factors – can be easily manipulated to project estimated outcomes – positive, neutral or negative.
Updated Calculator Released
The calculator is updated for 2024-25 tax rates, and is available now from our storefront on Gumroad.
Get the Negative Gearing Calculator Here ($10)
This page was last modified 2024-08-02