How 950,000 Australian investors use negative gearing to reduce tax and build long-term wealth, with real numbers, honest risks, and a step-by-step framework.
Negative Gearing Australia: Complete Tax Strategy Guide for Property Investors
What is Negative Gearing?
What is Negative Gearing?
Negative gearing occurs when an investment property's costs exceed its rental income. The resulting loss is offset against your salary, reducing your taxable income and tax bill. The strategy accepts short-term losses in exchange for long-term capital growth.
🎥 Watch First: Negative Gearing Explained (10 Minutes): Rasti Vaibhav explains the complete strategy, from mechanics to policy risk to real case studies
FAST FACTS:
FAST FACTS:
Australian Negative Gearing (ATO, CoreLogic, PIPA: 2024)
Australian Negative Gearing (ATO, CoreLogic, PIPA: 2024)
- 950,000 Australian landlords used negative gearing in 2024: (41% of all rental property owners). (Source: ATO, 2024)
- 60% of users earn less than $100,000 annually. It is not exclusively a high-income strategy. (Source: ATO, 2024)
- 73% of investors who hold negatively geared properties for 10+ years achieve a positive net outcome. (Source: CoreLogic / PIPA, 2024)
- 7.2 years = average time until equity exceeds accumulated losses. (Source: PIPA, 2024)
- $8,729 = average annual tax saving for a $100K earner with a $30,000 rental loss.
- 1985 abolition caused Sydney rents to rise ~40% within 18 months. Policy reinstated 1987. (Source: Treasury records)
On this Page
On this Page
- What Is Negative Gearing? Definition & Basics
- How Negative Gearing Works? Step-by-Step
- What Tax Deductions Can I Claim?
- Case Study: Emma ($90K Salary)
- Negative vs Positive Gearing
- Honest Benefits & Risks
- Policy Changes: What Might Happen?
- Is Negative Gearing Right for You? Self-Assessment
- How to Implement: 6-Step Guide
- Frequently Asked Questions
What Is Negative Gearing?
What Is Negative Gearing?
Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates, creating a rental loss that can be offset against other taxable income.
KEY TAKEWAY:
KEY TAKEWAY:
Negative gearing is an Australian tax strategy where investment property losses reduce taxable salary income. The tax saving partially offsets the out-of-pocket loss while the investor waits for capital growth.
The Core Formula
The Core Formula
| Amount | |
|---|---|
| Rental Income | $20,000/year |
| Less: Property Expenses | $30,000/year |
| === Rental Loss === | −$10,000/year |
| Tax Saving (37% bracket) | $3,700 |
| Net Out-of-Pocket Cost | $6,300/year |
The Australian tax system allows this loss to reduce your taxable salary. You don't profit immediately, but you hold a growing asset at a reduced effective cost.
Who Uses Negative Gearing in Australia?
Who Uses Negative Gearing in Australia?
According to the Australian Taxation Office (2024):
| Income Band | Share of Users |
|---|---|
| Under $100,000 | 60% |
| $100,000 – $180,000 | 30% |
| Over $180,000 | Under 10% |
Common Occupations
Teachers · Nurses · Tradespeople · Police officers · Public servants · Allied health professionals · Office managers
Negative gearing is predominantly used by middle-income Australians, not high earners.
Teachers · Nurses · Tradespeople · Police officers · Public servants · Allied health professionals · Office managers
Negative gearing is predominantly used by middle-income Australians, not high earners.
What Negative Gearing Is NOT
What Negative Gearing Is NOT
| Misconception | Reality |
|---|---|
| "It's a tax dodge for the wealthy" | 60% of users earn under $100K. ATO data (2024) confirms it is a middle-income strategy. |
| "The government gives you free money" | You still make a loss. The tax benefit reduces it; it does not eliminate it. |
| "It's risk-free wealth building" | Capital growth is not guaranteed. Property selection is the critical variable. |
| "You profit immediately" | Short-term losses are accepted in exchange for long-term capital appreciation. |
| "It's the only way to invest" | Positive gearing (cash flow focus) is a valid alternative for different investor profiles. |
How Does Negative Gearing Work?
How Does Negative Gearing Work?
You buy an investment property, the costs exceed the rent, you claim the loss on your tax return, and you hold the property long-term while it appreciates in value.
Example: $650,000 property, 20% deposit ($130,000), $520,000 loan at 6.5% interest-only.
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Rental income: $23,400 ($450/week).
Expenses: mortgage interest $33,800, depreciation $12,000, management/rates/insurance $6,338, maintenance $1,700.
Total expenses: $53,838.
Rental loss: −$30,438.
Expenses: mortgage interest $33,800, depreciation $12,000, management/rates/insurance $6,338, maintenance $1,700.
Total expenses: $53,838.
Rental loss: −$30,438.
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Salary: $100,000.
Less rental loss: $30,438.
Taxable income: $69,562.
Tax without property: ~$22,967.
Tax with property: ~$14,238.
Tax saved: $8,729/year.
Less rental loss: $30,438.
Taxable income: $69,562.
Tax without property: ~$22,967.
Tax with property: ~$14,238.
Tax saved: $8,729/year.
Rental loss: $30,438.
Less tax saved: $8,729.
Net annual cost: $21,709 ($1,809/month).
Can you fund this comfortably from after-tax salary? If yes, negative gearing is viable.
Less tax saved: $8,729.
Net annual cost: $21,709 ($1,809/month).
Can you fund this comfortably from after-tax salary? If yes, negative gearing is viable.
Tax Saving at a Glance:
Tax Saving at a Glance:
Without property: Taxable income $100,000 → Tax ~$22,967
With property: Taxable income $69,562 → Tax ~$14,238
Tax saved: $8,729/year
With property: Taxable income $69,562 → Tax ~$14,238
Tax saved: $8,729/year
The Long-Term Wealth Model: 7-Year Example (6% Annual Growth)
The Long-Term Wealth Model: 7-Year Example (6% Annual Growth)
| Amount | |
|---|---|
| Purchase price | $650,000 |
| Value after 7 years (6% p.a.) | $976,908 |
| Capital gain | $326,908 |
| Less: Holding costs (7 × $21,709) | −$151,963 |
| Less: CGT (50% discount, 37% bracket) | −~$60,478 |
| Net profit | ~$114,467 |
| Return on $130K deposit over 7 years | ~88% (12.5% annualised) |
KEY TAKEWAY:
KEY TAKEWAY:
Negative gearing exchanges manageable annual losses for the potential to build substantial equity. It only works if the property appreciates. Property selection is the critical variable.
What Tax Deductions Can I Claim?
What Tax Deductions Can I Claim?
| Expense | Deductible? | Typical Annual Range |
|---|---|---|
| Mortgage interest | ✅ Yes | $25,000 – $45,000 |
| Building depreciation (Div 43) | ✅ Yes | $6,000 – $12,000 |
| Fixtures depreciation (Div 40) | ✅ Yes | $3,000 – $10,000 |
| Property management fees | ✅ Yes | $1,500 – $3,000 |
| Council rates | ✅ Yes | $1,800 – $3,500 |
| Water charges (owner-paid) | ✅ Yes | $800 – $1,500 |
| Building insurance | ✅ Yes | $800 – $1,500 |
| Landlord insurance | ✅ Yes | $400 – $800 |
| Repairs and maintenance | ✅ Yes | $1,500 – $4,000 |
| Strata fees (apartments) | ✅ Yes | $3,000 – $8,000 |
| Accountant fees | ✅ Yes | $400 – $800 |
| Capital improvements | ❌ No | Added to CGT cost base |
| Loan principal repayments | ❌ No | Not deductible |
| Buyer's agent fee | ❌ No | Added to CGT cost base |
Total typical annual deductions: $45,000 – $75,000 (varies by property type, age, and loan size).
Depreciation is a tax deduction for wear and tear on a building and its fixtures. It is a non-cash deduction, you claim it without physically spending money in that tax year.
Division 43 - Building: 2.5% of construction cost p.a. for buildings post-Sept 1987. Claimable for 40 years. Example: $500K building = $12,500/year.
Division 40 - Fixtures & Fittings: Carpets, blinds, appliances, air con. Diminishing value. Typical: $3,000–$10,000/year (Year 1–5), declining thereafter.
Tax saving example: $18,000 depreciation × 37% = $6,660 saved, without spending a dollar.
How to claim: Commission a depreciation schedule from a registered quantity surveyor ($500–$800, tax deductible). Give to your accountant annually.
Division 43 - Building: 2.5% of construction cost p.a. for buildings post-Sept 1987. Claimable for 40 years. Example: $500K building = $12,500/year.
Division 40 - Fixtures & Fittings: Carpets, blinds, appliances, air con. Diminishing value. Typical: $3,000–$10,000/year (Year 1–5), declining thereafter.
Tax saving example: $18,000 depreciation × 37% = $6,660 saved, without spending a dollar.
How to claim: Commission a depreciation schedule from a registered quantity surveyor ($500–$800, tax deductible). Give to your accountant annually.
Case Study: Emma ($90K Salary, Sydney Rentvester)
Case Study: Emma ($90K Salary, Sydney Rentvester)
Emma's Situation
Emma's Situation
Profile: Age 30, Accountant, $90,000 salary. Rents in Marrickville (inner west Sydney). Goal: build property wealth while living where she wants.
The problem: Inner west Sydney median prices of $1.2M–$1.5M were unaffordable on her salary. She chose to rentvest: rent in Sydney, invest in Wollongong (strong growth fundamentals, 1 hour south).
The problem: Inner west Sydney median prices of $1.2M–$1.5M were unaffordable on her salary. She chose to rentvest: rent in Sydney, invest in Wollongong (strong growth fundamentals, 1 hour south).
Emma's Investment Property
Emma's Investment Property
Location: Wollongong, NSW
Purchase price: $620,000 (March 2024)
Deposit (20%): $124,000
Loan: $496,000 at 6.5% interest-only
Rental income: $26,000/year ($500/week)
Purchase price: $620,000 (March 2024)
Deposit (20%): $124,000
Loan: $496,000 at 6.5% interest-only
Rental income: $26,000/year ($500/week)
Emma's Year 1 Financials
Emma's Year 1 Financials
| INCOME | |
| Rental income | $26,000 |
| EXPENSES | |
| Mortgage interest | $32,240 |
| Property management (7%) | $1,820 |
| Council rates | $1,900 |
| Insurance (building + landlord) | $1,400 |
| Maintenance | $2,200 |
| Depreciation (newer property) | $10,500 |
| Accountant & other | $800 |
| Total expenses | $50,860 |
| TOTAL | |
| Rental loss | −$24,860 |
Emma's Tax Benefit
Emma's Tax Benefit
| Without Property | With Property | |
|---|---|---|
| Taxable income | $90,000 | $65,140 |
| Tax payable | ~$20,797 | ~$13,173 |
| Tax saved | — | $7,624 |
Emma's True Annual Cost
Emma's True Annual Cost
Rental loss: $24,860 → Less tax benefit: $7,624 → Net cost: $17,236/year ($1,437/month)
Compare: Buying a $1.2M Sydney property = ~$82,000/year in mortgage + costs. Emma saves $36,000+ annually.
Compare: Buying a $1.2M Sydney property = ~$82,000/year in mortgage + costs. Emma saves $36,000+ annually.
Emma's 2-Year Outcome (March 2024 – March 2026)
Emma's 2-Year Outcome (March 2024 – March 2026)
| Metric | Amount |
|---|---|
| Purchase price | $620,000 |
| Estimated value (Feb 2026) | $680,000 |
| Equity gain | $60,000 |
| Total holding costs (2 years) | $34,472 |
| Net position | +$25,528 |
Emma's reflection: "I was paying $1,437/month after tax benefits, less than many people's car payments. Unlike a car, my property was appreciating. Two years in, I have $60K in equity I wouldn't have had if I'd just kept renting."
Projected 10-Year Outcome (Conservative)
Projected 10-Year Outcome (Conservative)
Estimated property value: $1.02M (from $620K)
Total holding costs (after tax, declining annually): ~$150,000
Equity after loan balance: ~$524,000
Net gain on $124,000 deposit: ~$374,000 - 302% return
Total holding costs (after tax, declining annually): ~$150,000
Equity after loan balance: ~$524,000
Net gain on $124,000 deposit: ~$374,000 - 302% return
Negative vs Positive Gearing: Which Suits You?
Negative vs Positive Gearing: Which Suits You?
Negative gearing: property costs MORE than it earns → you fund the shortfall → tax deduction.
Positive gearing: property earns MORE than it costs → money in pocket → pay tax on profit.
Positive gearing: property earns MORE than it costs → money in pocket → pay tax on profit.
| Factor | Negative Gearing | Positive Gearing |
|---|---|---|
| Cash flow | Out-of-pocket ($1K–$2K/month) | Money in pocket ($200–$800/month) |
| Tax treatment | Loss reduces taxable income | Profit increases taxable income |
| Typical gross yield | 3–4% | 6–9% |
| Typical location | Metro cities, growth corridors | Regional, high-yield markets |
| Historical capital growth | 6–8%+ p.a. | 3–5% p.a. |
| Best suited for | Wealth builders, 7–10+ yr horizon | Income seekers, pre-retirees |
| Typical investor age | Under 50 | Any age, especially 50+ |
Note: Many experienced investors use both strategies in the same portfolio, negatively geared growth assets in capital cities combined with positively geared income assets in high-yield regional markets.
Honest Benefits & Risks
Honest Benefits & Risks
✅ The Benefits
✅ The Benefits
- Tax reduction: dollar-for-dollar offset. Every dollar of rental loss reduces taxable income by one dollar. $20K loss at 37% bracket = $7,400 saved annually.
- Access to high-growth locations. Tax benefits make it viable to hold 3–4% yield metro properties with 6–8% historical growth potential.
- Accessible to middle-income earners. ATO data (2024): 60% of users earn under $100K. Teachers, nurses, and tradespeople use this strategy.
- Proven long-term track record. 73% of investors holding 10+ years achieve a positive net outcome (CoreLogic / PIPA, 2024).
- Non-cash depreciation. $8,000–$22,000/year in deductions without spending money, particularly valuable on newer properties.
❌ The Risks
❌ The Risks
- Ongoing cash flow pressure. Must fund $1,000–$2,500/month from salary. Job loss without adequate buffer = potential forced sale.
- Capital growth is not guaranteed. Strategy only works if the property appreciates. Approximately 9% of investors experience a net loss (PIPA, 2024).
- Serviceability impact. Banks treat rental losses as a liability, limiting your capacity to purchase additional properties.
- Interest rate sensitivity. A 1% rate rise = ~$5,000 more per year on a $500K loan. Stress-test at rates 2–3% above current.
- Capital gains tax on sale. Investment properties are not CGT-exempt (unlike owner-occupied). A $326K gain at 37% (50% discount) = ~$60K in tax.
- Policy change risk. Negative gearing is under review as of February 2026. Historical precedent suggests grandfathering of existing properties if policy changes.
Outcome Distribution: 10-Year Hold (CoreLogic / PIPA, 2024)
Outcome Distribution: 10-Year Hold (CoreLogic / PIPA, 2024)
73%: Positive net outcome
18%: Break even (appreciation = accumulated costs)
9%: Net loss (poor property selection or insufficient hold time)
The single strongest predictor of success: quality of property selection (location fundamentals).
18%: Break even (appreciation = accumulated costs)
9%: Net loss (poor property selection or insufficient hold time)
The single strongest predictor of success: quality of property selection (location fundamentals).
Policy Changes: What Might Happen?
Policy Changes: What Might Happen?
Current Status: February 2026
Current Status: February 2026
Negative gearing remains in place. The Australian government is conducting a policy review as part of its housing affordability agenda. No changes have been legislated.
Historical Precedent
Historical Precedent
| Event | What Happened | Outcome |
|---|---|---|
| Australia 1985–1987 | Negative gearing abolished | Sydney rents rose ~40% in 18 months. Policy reinstated 1987. |
| UK 2017 | Mortgage interest relief phased out | Rental supply fell 8%. Rents rose 12% above inflation. (ONS) |
| New Zealand 2021 | Interest deductibility removed | Auckland rents rose 18%. Policy partially reversed 2024. |
Strategic Response for Investors
Strategic Response for Investors
Don't panic. No changes have been made as of February 2026.
If changes occur, most analysts expect grandfathering (existing properties protected).
Focus on fundamentals. Locations with strong infrastructure, employment, and demographics perform regardless of tax policy.
Build a cash buffer. Can you afford the property without the tax benefit? If yes, invest with confidence.
If changes occur, most analysts expect grandfathering (existing properties protected).
Focus on fundamentals. Locations with strong infrastructure, employment, and demographics perform regardless of tax policy.
Build a cash buffer. Can you afford the property without the tax benefit? If yes, invest with confidence.
Is Negative Gearing Right for You?
Is Negative Gearing Right for You?
Self-Assessment Framework
Self-Assessment Framework
✅ Negative gearing suits you if:
- Annual income $80K+ (single) or $140K+ (couple)
- Stable employment with strong job security
- Can fund $1,000–$2,000/month comfortably from salary
- 20% deposit + 6–12 months emergency fund (separate)
- Investment horizon: 7–10+ years minimum
- Goal: long-term wealth building, not immediate income
- In the 32.5%+ marginal tax bracket
- Typically under 50 (time for capital growth)
❌ Consider alternatives if:
- Income under $80K or employment is variable
- Need the property to fund itself from day one
- Cannot sustain out-of-pocket holding costs
- Approaching retirement with shorter growth horizon
- Investment horizon under 7 years
- Conservative profile, prefer stability over maximum return
- Tight budget, immediate cash flow is essential
- Age 50+ with less time for growth to compound
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✔ Score Yourself
✔ Score Yourself
7+ criteria in the left column → Proceed with professional advice.
Fewer than 7 → Explore positive gearing, lower price point, or build financial position first.
Fewer than 7 → Explore positive gearing, lower price point, or build financial position first.
Alternative Strategies (If Negative Gearing Doesn't Suit)
Alternative Strategies (If Negative Gearing Doesn't Suit)
- Positive gearing: Regional/high-yield properties (6–9%) that fund themselves. Lower capital growth, no out-of-pocket commitment.
- Lower purchase price: A $500K property generates a smaller loss. More affordable holding costs. Still builds wealth, just slower.
- Build your position first: Increase savings, reduce debt, stabilise income. Re-assess in 12–24 months.
- Diversified assets: Shares and ETFs offer lower entry costs, high liquidity, and a different risk/return profile.
How to Implement Negative Gearing (6-Step Guide)
How to Implement Negative Gearing (6-Step Guide)
Before purchasing, engage:
- Accountant specialising in investment property tax: $800–$1,500/year
- Mortgage broker with investment lending expertise: Free (paid by the lender)
- Buyer's agent (optional): $15,000–$30,000 or 2–3% of purchase price
- Solicitor or conveyancer: $1,500–$3,000
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Work with your broker to determine optimal loan structure (interest-only vs P&I, fixed vs variable). Stress-test capacity at +2–3% above current rates. Consider an offset account for maximum flexibility.
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Evaluate locations on:
- Infrastructure pipeline (rail, hospital, road projects confirmed or funded)
- Employment diversity, not reliant on a single employer or industry
- Population growth trajectory and demographic tailwinds
- Low rental vacancy rates (under 2% ideal)
- Supply constraints, limited new development land
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Due diligence essentials:
- Building & pest inspection: $400–$800 (non-negotiable)
- Contract review by solicitor
- Strata report (apartments only): financial health check
- Rental appraisal: 2–3 independent opinions
- Landlord insurance: arrange before settlement
- Depreciation schedule: commission from a quantity surveyor ($500–$800)
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Open a dedicated bank account for all property income and expenses. Track every receipt. Work with a specialist accountant, not all general accountants are familiar with investment property tax treatment. Commission a depreciation schedule from a quantity surveyor.
Minimum hold: 7 years (smooth market cycles + CGT discount threshold). Target hold: 10–15 years. Annual review: market value, rent at market rate, loan structure, cash flow buffers. Every 2–3 years: check equity; when equity exceeds $150K–$200K, assess whether you can access it as a deposit for a second property.
Frequently Asked Questions
Frequently Asked Questions
Negative gearing is when your investment property costs more to own than it earns in rent, and you claim the difference as a tax deduction against your salary. If your property earns $20K but costs $30K, the $10K loss reduces your taxable income by $10K. At 37%, that saves $3,700 in tax, so your real net loss is $6,300, not $10,000.
Tax saved = Rental loss × Your marginal tax rate. Examples: $10K loss × 32.5% = $3,250 saved. $20K loss × 37% = $7,400 saved. $30K loss × 45% = $13,500 saved. Higher income means a larger benefit, but you are still making a loss; the tax benefit reduces it, not eliminates it.
No. ATO data (2024) shows over 60% of negative gearing users earn less than $100,000 annually. Common occupations include teachers, nurses, tradespeople, and police officers. It is a middle-income strategy, not a high-earner tax dodge.
When abolished in 1985, Sydney rents rose approximately 40% within 18 months. The policy was reinstated in 1987. Similar outcomes followed in the UK (2017) and New Zealand (2021). As of February 2026, negative gearing remains in place. Analysts expect any future changes to include grandfathering of existing properties.
Yes. Your investment property loan is separate from your home loan. Only investment loan interest is deductible (home loan interest is not). Keep the two loans entirely separate. Ideal structure: home loan on P&I (reducing non-deductible debt), investment loan on interest-only (maximising deductible interest).
Your mortgage obligations continue regardless of employment status. This is why a 6–12 month emergency fund is essential before entering a negatively geared position. Rental income typically covers approximately 60–70% of costs. Your buffer covers the gap. If the situation is prolonged, selling is an option, but it may take 3–6 months and could result in a loss if forced. Stable employment is a prerequisite for this strategy.
If capital growth does not occur, the strategy fails as you accumulate losses without offsetting equity growth. Over 10+ years, fewer than 15% of fundamentally sound capital city properties have failed to appreciate (PIPA). Over 5 years the risk is higher. Protection strategies: buy fundamentally strong property, avoid market peaks, hold long-term, and avoid over-leveraging (target 80% LVR rather than 90%+).
Minimum: 7 years (helps smooth market cycles and triggers the 50% CGT discount). Target: 10–15 years. PIPA data (2024) shows 73% of investors holding 10+ years achieve a positive net outcome. The average hold period for negatively geared properties is 11.4 years.
Your Next Steps
Your Next Steps
QUICK ACTION CHECKLIST: 15 MINUTES
QUICK ACTION CHECKLIST: 15 MINUTES
- Watch the video above (10 minutes: real case studies and policy context)
- Complete the self-assessment (Section 8: does negative gearing fit your profile?)
- Calculate your monthly capacity (can you comfortably fund $1,000–$2,000/month?)
- Book a free strategy call if you want personalised assessment
Not Sure If Negative Gearing Suits Your Situation?
Not Sure If Negative Gearing Suits Your Situation?
Book a complimentary 30-minute strategy session: your income, savings, goals, and timeline assessed honestly.
No obligation. No pitch. Just clarity.
About This Guide
About This Guide
CFA Charterholder | Founder, Get RARE Properties
CFA Charterholder | Founder, Get RARE Properties
Written by Rasti Vaibhav, Founder, Get RARE Properties. CFA-qualified buyer's agent and property investor with a personal portfolio of 21 investment properties. $250M+ in client acquisitions across Australia.
Why trust this information: Real implementation experience (not academic). Independent advice, no financial incentive to recommend negative gearing over any alternative. Daily collaboration with investment tax accountants.
Why trust this information: Real implementation experience (not academic). Independent advice, no financial incentive to recommend negative gearing over any alternative. Daily collaboration with investment tax accountants.
Data sources: Australian Taxation Office (2024), CoreLogic Research (2024), Property Investment Professionals of Australia: PIPA (2024 Annual Investor Sentiment Survey), UK Office for National Statistics, NZ Treasury.
Transparency: This guide presents benefits AND risks. If a different strategy suits your situation, we will tell you.
Disclaimer: General educational information only. Not personal financial, tax, or investment advice. Consult a qualified accountant and financial adviser before making investment decisions.
Transparency: This guide presents benefits AND risks. If a different strategy suits your situation, we will tell you.
Disclaimer: General educational information only. Not personal financial, tax, or investment advice. Consult a qualified accountant and financial adviser before making investment decisions.