Hi,
I do not have any knowledge at all on property investment (I heard of this site through the webmaster who worked on it), but I have a question I’d like clarify…
My dad was saying if you get a loan to buy a house for investment, and rent that house out, you don’t get taxed from the money you earn?
He’s saying if we rent out the house we have now to pay off the mortgage of another house, the earnings we made would be taxed.
Is this true?
Thanks a bunch!
Hi Bennn,
Welcome to the PI forum! I’m a little confused by your question but I’ll do my best to answer it.
All rent that you receive must be declared as part of your taxable income but you can offset any expenses you have paid such as rates, insurance etc. and the interest only part of any loan repayments. The tax office don’t look at which property is mortgaged as security with the bank rather what the borrowed funds were used for.
What often happens is that people live in their PPOR (home) for many years and pay the mortage off. Then they decide to build their dream home, only problem is they have no cash, so they decide to rent out this PPOR and borrow to build the dream home. In this case because the funds will be used to build the dream home, which is personal, all interest would NOT be tax deductible. It doesn’t matter what property you use as security but where the funds are used. And yes the rent less expenses on the old house will need to be disclosed as taxable income.
I hope this example explains what you’re asking.
AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”
If the income from the investment property is less than the expenses incurred for the investment property you are making a loss or breaking even. This loss can be negatively geared against other income (rent from other properties or a wage) thus reducing your tax assessable income. If breaking even you won’t pay income tax on the rental income.
If the investment rental income is more than the expenses incurred you will pay tax and might be expected to fill in an individual activity Statement with the ATO.
The marginal tax rate will determine if negative gearing is worth doing.
You should talk to an accountant to get specific advice based on your situation and whether it is worth doing.A Drawback is when you sell you will be liable on the investment property for capital gains tax if you make a capital gain.
Do not Borrow money for a house you will live in and then rent your old home out and try and claim a tax deduction it is not tax deductible and this will be picked up by the ATO
Brett Duxbury
Duckster Financial Services
Mortgage Broker
http://www.ducksterfinancial.comComments are of a general nature and may not be relevant to your individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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