Hey guys, I'm relatively new to the whole idea of property investing.. pretty much can't stop looking into it after reading Steve's book. Im just a bit confused on this one topic and I was hoping someone might be able to clear it up for me.
What I want to know is what I can claim as a tax deduction on my annual income from a rental property that is positively geared. From reading this article (http://money.ninemsn.com.au/article.aspx?id=819176) it states near the bottom "But even if you choose to move into neutral or positive territory, you can still claim deductions against your income for such things as depreciation, property-management costs and interest payments." Is this true?
Does this mean you can claim body corporate fees?? and what about rates or any other expenses? On the ATO website it doesnt say anything about having to be negatively geared to be able to claim these deductions on my personal income.
If anyone could shed some light it would be greatly appreciated!
Regards,
Dylan.
Hi Dylan,
What ‘positive geared’ means is that the rental income from the property is more than all of your expenses. So yes, you can claim rates, strata fees etc.
Being positively or negatively geared doesn’t change what you can and can not claim as expenses.
Thanks Dan!!
That's all I needed to know
Cheers!
The rental income you earn is regarded as income so when you fill in your tax return you fill in a section called Net Property Income / Loss
If the Net property income is positive you pay tax on it
If the Net property income is negative it is subtracted from your other assessable PAYE income (WAGE and extra earnings)and then you will have less assessable earnings and tax you already paid during the year will be returned to you.
However it sounds great but with the lower tax rate scales you may be in say a 30% tax bracket.
So you Lose out of your pocket say $10,000 so you can claim back $3000 unless you are using building write off depreciation
Net property income = Rental income minus (Expenses incurred to earn the rental income)
Net Property income = Rental Income
– Depreciation expenses (fittings)
– Depreciation expenses (Building Write off) http://www.ato.gov.au/individuals/content.asp?doc=/content/00183243.htm
– Council Rates
– Water Rates
– Insurance
– Loan establishment costs over first five years http://www.ato.gov.au/individuals/content.asp?doc=/content/00113245.htm
– repair http://www.ato.gov.au/individuals/content.asp?doc=/content/00183233.htm
– investment mortgage interest http://www.ato.gov.au/individuals/content.asp?doc=/content/00113233.htm– legal expenses http://www.ato.gov.au/individuals/content.asp?doc=/content/00113243.htm
Now with new buildings you can depreciate 2.5% of the building costs over 40 years however the amount you depreciate is taken off the cost base for capital gains tax calculations which means you are spending money each year paid for out of thin air but you pay more capital gains tax if you sell later on.
So with a positive geared property with the actual cash in your hand you may be able to have a loss on paper through the building write off depreciation. It is like an expense you have when you are not actually spending money out of your pocket.see
http://www.ato.gov.au/download.asp?file=/content/downloads/IND00191817n17290609.pdf
the physical documents can also be ordered
http://www.ato.gov.au/individuals/content.asp?doc=/content/00191817.htm
however account has to be set up with an email and password
Thanks duckster for the comprehensive response.
So depreciation would work in my favor because say I had a net rental profit of $1000 (Which is left over in my account after all expenses have been deducted other than depreciation) but on paper instead of paying tax on that $1000 depreciation kicks in and shows as a net rental loss and therefore saving tax? So negative gearing but with positive cashflow???
How do banks look upon this when you go to take out more loans.. if i had say 10 of these properties.. would the bank take into account the depreciation or would they see me with 10 loans on 10 negatively geared properties??
Thanks for the help!
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