An asset pays you. A liability doesn’t.

By James Zhang · Wealth · Published 17 September 2026 · Updated 19 September 2026 · 15 min read

The test that has nothing to do with what something is worth

Most people sort what they own into two piles by looking at a valuation. The house is worth $900,000, so it goes in the "asset" column. The car is worth $30,000, so it goes there too. Robert Kiyosaki's Rich Dad Poor Dad throws that sorting method out entirely. His assets vs liabilities test has nothing to do with value, and everything to do with direction: does the thing put money into your pocket every month, or does it take money out?

"An asset puts money in your pocket. A liability takes money out of your pocket." That is the whole rule, stated as plainly as Kiyosaki ever states anything. It is deliberately not the accountant's definition, and that is the point of it — a balance sheet will happily call something an asset while it quietly drains your bank account every year it sits there. I know, because I owned one for 18 years: a block of commercial land in Western Sydney that I bought in 2006 for $2.06 million plus GST and sold in 2024 for $8.0 million plus GST. It nearly quadrupled in value. By Kiyosaki's test it was a liability every single day I held it, and the way I bought it cost me a second time on the way out.

Assets vs liabilities: the rule Kiyosaki actually uses

Kiyosaki's framework comes from Rich Dad Poor Dad, and its most provocative line is the claim that your own home is not an asset — because for as long as you live in it, it takes money out of your pocket every month (rates, insurance, maintenance, interest) and puts nothing back in. An accountant will still list it as an asset on a personal balance sheet, because accounting defines an asset as anything of value that you own. Kiyosaki isn't arguing with the accounting definition; he's arguing that it's the wrong question to be asking when you're deciding what to buy.

Under his rule, four things commonly bought as "investments" fail the test outright: a car bought on finance, a holiday house that sits empty most of the year, jewellery and collectables that pay no income, and — the one this article is really about — land bought and held with no tenant, no crop, no lease and no development on it. Every one of those can be worth more later. None of them puts a dollar in your pocket while you hold it.

Why a balance sheet can lie to you

The reason this distinction matters is that a rising valuation and a rising bank balance are two completely different things, and only one of them can be spent, borrowed against without new debt, or relied on if your income stops. A block of land that quadruples in value over 18 years has, on paper, "made" its owner a great deal of money. In practice, that owner has not received a single dollar from it in those 18 years — and has paid council rates, land tax and interest the entire time. The gain is real, but it is locked up until the day the land is sold, and it can just as easily go the other way before that day arrives.

The land I held for 18 years: $2.06m in, $8.0m out, $0 in between

Here are my actual numbers, because a rule like this only means something when you see it applied to a real purchase. In 2006 I bought a block of commercial land in Western Sydney for $2.06 million plus GST. I borrowed $1 million of that from NAB and put the rest in as cash. There was no tenant, no lease and no building on it — just a block sitting there while the suburbs grew around it. I held it for 18 years and sold it in 2024 for $8.0 million plus GST.

On paper that is a very good result: a gross gain of $5.94 million, or roughly 7.8% a year compounded. It is also, by Kiyosaki's test, 18 years of liability. In all that time the land paid me nothing. What it did every year, without fail, was send me bills — council rates, NSW land tax, and interest on the NAB loan — and every one of those was paid out of income from my business, not from the land itself.

Here is the part that actually stings in hindsight. Australian shares returned 9.0% a year over the 30 years to 30 June 2026 with income reinvested, according to the Vanguard 2026 Index Chart; Australian listed property returned 7.8% a year over the same period. My land's 7.8% a year is the same headline number as listed property — except listed property paid its distributions along the way, and my block paid nothing and charged me rates, land tax and interest for the privilege. The money tied up in that block could have been in dividend-paying shares, or a leased commercial property, or a rental that covered its own costs — any of which would have put cash in my pocket every year I waited, on top of whatever they were worth at the end.

The second mistake: buying it in a company, not a trust

The first mistake was buying something that paid nothing. The second was how I bought it. I purchased the block in a company name. That felt tidy at the time — one entity, one set of accounts — and it turned out to be the more expensive decision of the two, because of a single rule in Australian tax law: companies cannot use the 50% capital gains tax discount. Individuals and trusts that hold an asset for more than 12 months pay tax on only half the gain. A company pays on all of it (ATO, CGT discount, updated 29 June 2026).

Had I bought the land through a discretionary trust instead, the trust could have distributed the capital gain to individual beneficiaries, each of whom would have paid tax on half of their share. In a company, the gain is taxed at the company rate — 30%, or 25% for a small trading company that passes the ATO's passive-income test, which a company whose income that year is mostly a capital gain generally doesn't — and then, when the after-tax proceeds are paid out as dividends, the shareholders are topped up to their own marginal rate through the franking system. For a shareholder on the top rate, that means the whole gain ends up taxed at up to 47% (45% plus the 2% Medicare levy) with no discount anywhere in the chain.

On the raw numbers, at the top rates, that is the difference between roughly $2.8 million of tax and roughly $1.4 million of tax on the same $5.94 million gain — about $1.4 million that a different piece of paper, signed in 2006, would have kept. My actual bill was different, because stamp duty, legal and selling costs reduce the gain, and the rates that applied in the year of sale were what they were. But the shape of it is exactly this, and it is the second lesson of the block: the structure you buy in is decided on day one and cannot be changed later without triggering the very tax you are trying to avoid.

The honest case for the company — and why it still loses

A discretionary trust isn't free of downsides, and anyone telling you it is hasn't held land in New South Wales. Revenue NSW does not give a special (discretionary) trust the land tax tax-free threshold: a trust pays from the first dollar of land value, where a company or an individual only pays above the threshold ($1,075,000 for the 2026 tax year, at $100 plus 1.6% of the value above it). At today's thresholds, a trust holding land valued at $2.06 million would pay about $33,000 a year in land tax against about $15,900 for a company — roughly $17,000 a year more, every year (Revenue NSW, 2026 land tax year). And since 1 July 2019, individuals, SMSFs and most trusts have been unable to deduct the holding costs of vacant land — interest, rates, land tax — at all, while companies still can (ATO, deductions for vacant land, updated 22 June 2026).

Both of those points are real, and both are dwarfed by the CGT outcome. Eighteen years of an extra $17,000 in land tax is a little over $300,000; the discount forgone on a $5.94 million gain is more than four times that. And the vacant-land deduction rule only matters because the block was vacant — which is to say, the two mistakes fed each other. A block with a tenant on it is not "vacant land" for that rule, pays its own land tax out of the rent, and would have been a straightforward trust asset from the start.

What actually pays you in Australia

Applying the test honestly means looking at what different asset classes are actually paying right now, not what they might be worth in a decade. As at the second half of 2026, the picture across a few common Australian options looks like this:

Yields are gross, point-in-time figures as at the dates shown and will move. They illustrate the comparison, not a forecast for any one property or portfolio.

The rule I invest by now: as many cash-flow-positive assets as possible

Kiyosaki's test is blunt on purpose, and it isn't a complete investment philosophy on its own — plenty of genuine assets pay little or nothing for a stretch (a development site being rezoned, a growth share that reinvests every dollar of profit) and still turn out to be excellent decisions. The test isn't a ban on capital growth. It's a discipline for the moment you're deciding whether to buy something: ask what it will pay you while you own it, not only what you hope it will be worth when you eventually sell it.

My own rule, after the block, is simpler and stricter than Kiyosaki's: buy as many cash-flow-positive assets as possible, and let the growth come with them. The logic is not that growth doesn't matter — my land grew 7.8% a year — it is that income compounds and growth only promises to. An asset that pays you can fund the next asset. A leased commercial property pays its own land tax and interest and leaves something over. A dividend portfolio drops cash into the account every six months whether the market is up or down. Each of those buys the next one, and none of them can force you to sell at the wrong time, because none of them is asking you to fund it. A block of vacant land can only ever be paid for out of something else — and the something else, for 18 years, was me.

Before the next purchase, three questions do most of the work:

• What does this pay me, in cash, while I hold it? If the honest answer is "nothing," that isn't automatically a reason to walk away — but it is a reason to know exactly what you're choosing, and how long you're prepared to fund it for. I would have said "a few years" in 2006. It was 18.
• What am I giving up by tying my money up here instead? A block of land competes for your capital with dividend shares, leased property and even a bank deposit — all of which were paying somewhere between 4.35% and 4.94% through 2026 while you waited, and all of which would have paid something every year since 2006.
• Who is actually paying my holding costs, and in what name? Rates, land tax, interest and insurance don't pause because the asset isn't earning. If nothing else is covering them, you are — and if you bought in the wrong entity, the tax office will take a larger share of the eventual gain as well.

None of this means never buy land, never hold a growth asset, or never accept a stretch with no income. It means going in with your eyes open about which pile — asset or liability — the thing actually belongs in while you own it, deciding the structure before you sign, and preferring, wherever you can, the assets that pay you to wait.

The end goal: passive income that replaces your job

All of this points at one destination, and it is worth saying plainly because most people never do. The final strategy is to build as much passive income as possible until the passive income replaces your job. Not "supplements" it — replaces it. Every asset that pays you is a small piece of your wage that no longer has to come from your time.

The arithmetic is simpler than it sounds. Say you earn $30 an hour. Then every extra $30 of passive income a year is one hour a year you no longer have to work. It doesn't feel like much at $30 — it isn't — but the same rule holds at every scale, and it compounds in the one direction that matters: each asset you buy takes a permanent slice off the number of hours your life depends on.

Illustration only. $30 an hour is an assumed wage; 38 hours is the National Employment Standards maximum ordinary week (Fair Work Ombudsman); 52 weeks, no leave. Yields are the ASX 200 gross dividend yield (4.57%, half-year to June 2025) and the national gross rental yield (4.94%, Q3 2026) from the Sources below, before tax and costs. Compare after-tax wage with after-tax income when you do this for real.

Two things fall out of that table. The first is that the finish line is a number, not a feeling — at $30 an hour it is roughly $59,000 a year of passive income, or something like $1.2–1.3 million of income-producing assets at today's gross yields, less if the yields are higher or the wage is lower. You can work out your own line in a minute. The second is that the finish line is reached one hour at a time. Nobody buys the whole $1.3 million in one go; you buy the first $34,000 of it, it hands you $1,560 a year, and that $1,560 goes into the next one.

Frequently asked questions

Sources

Figures are gross, point-in-time and dated individually below. They will move — check the primary source for a current number before relying on it. The land figures are the author's own purchase and sale prices, excluding GST.

1. Rich Dad, "Is Your House an Asset?" — Kiyosaki's asset/liability definition, Rich Dad Poor Dad — richdad.com
2. Australian Taxation Office, "CGT discount" — 50% for individuals and trusts after 12 months; "Companies can't use the CGT discount", updated 29 June 2026 — ato.gov.au
3. Australian Taxation Office, "Tax rates 2024–25" (companies) — 25% base rate entities, 30% all other companies, updated 16 May 2025; and "Changes to company tax rates" — the $50 million turnover and 80% passive-income tests, net capital gains counted as passive income, updated 4 September 2026 — ato.gov.au
4. Australian Taxation Office, "Tax rates – Australian residents" — 45% above $190,000 for 2024–25 and 2025–26, plus the 2% Medicare levy, updated 13 August 2026 — ato.gov.au
5. Revenue NSW, "How land tax is calculated" — 2026 tax year: threshold $1,075,000, $100 plus 1.6% above it, premium threshold $6,571,000 at 2%; no threshold for special (discretionary) trusts — revenue.nsw.gov.au
6. Australian Taxation Office, "Deductions for vacant land after 1 July 2019" — holding costs not deductible for individuals, SMSFs and most trusts; corporate tax entities excluded from the rule, updated 22 June 2026 — ato.gov.au
7. Vanguard, "2026 Vanguard Index Chart" — 30-year returns to 30 June 2026, income reinvested, no costs or taxes: Australian shares 9.0% p.a., Australian listed property 7.8% p.a., cash 4.0% p.a. — vanguard.com.au
8. Fair Work Ombudsman, "Hours of work" — maximum ordinary hours for a full-time employee, 38 a week, under the National Employment Standards — fairwork.gov.au
9. Trading Economics, ASX dividend yield, 4.57% for the half-year to June 2025 — tradingeconomics.com
10. Global Property Guide, Australia gross rental yields, national average 4.94% Q3 2026 (up from 4.69% Q1 2026) — globalpropertyguide.com
11. Reserve Bank of Australia, Statement by the Monetary Policy Board, cash rate held at 4.35% — rba.gov.au

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