6.5.1 Introduction to negative gearing
An applicant or their partner who reduces their taxable income by claiming a loss against rental property or a passive income earning investment will have to add back the value of the deduction (commonly known as negative gearing) for AIC purposes.
These deductions are to be self-declared at the time of application, by the applicant and, where applicable, his/her partner.
Investment and rental property losses flowing through to the individual(s) from investments or rental property owned in a trust or company are not taken into account for AIC income testing.
Any substantial changes in taxable income deductions from negative gearing, may warrant reassessment because of the effect on current or reverse current income.
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6.5.2 Definition of rental property
For the purposes of AIC ‘rental property’ owned by an individual person includes:
a house, home unit or flat;
a room in a house, home unit or flat;
an on-site caravan;
a house-boat;
overseas rental property; or
any other similar rental property.
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6.5.3 Definition of passive income earning investment
For the purposes of AIC a ‘passive income earning investment’ is an investment where the person spends less than 17.5 hours, on average, each week working on that investment.
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6.5.4 Valuing rental property losses (negative gearing)
Only the amount allowed as a taxable income deduction claimed by the relevant taxpayer (ie the applicant or partner), will be added to their income for AIC purposes. For example: a relevant person's taxable income may be reduced by $4,000 in share investment losses (negative gearing) - this amount will be added to that person's income for AIC purposes.
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6.5.5 Self declaration
The applicant or his or her partner is required to self-declare on the claim form, the net amount of negative gearing claimed against other taxable income in their individual or partnership income tax return.
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6.5.6 Compliance
The Centrelink Debt Recovery Unit will conduct compliance checks with the Australian Taxation Office (ATO).
