True return on interest and depreciation.

Im no accountant, so don't take this as gospel, but from memory it sort of works like this;

Say you earn $100k and pay 48.5% tax on it (Yuk!!)

Your rent is added to your earned income, which then means you have a new taxable income to pay (more than you have already).
$100k + $20,500 = $120,500. You have already paid $48,500 in tax, the tax on the new taxable income is $58,442; you now owe an extra $9,942.

Now you subtract all the expenses for the I.P, and they are deducted at your marginal tax rate.
Total expenses (including Loan Interest and depreciation) = $27,000.
 
(I haven't added other expenses such as insurance, management, maintenance, rates – I assume they are in your $6k expenses figure? If not, add them to the other expenses. If you don't know the total, we can assume a conservative 10% of rent would be the amount).

So, new total expenses is = $29,700 (including 10% other expenses)

Deducted at your marginal rate of 48,5%, you can claim back = $14,404 ($29,700 @ 48.5%)

This is deducted from your new taxable income of  $125,500, which you still owe tax of $9,942.

Your tax return should be approx = $4,462.

There is a calculator in one of the Margaret Lomas books; she has 5 books now; read them all, and the calculator can help you guestimate this figure. Or, talk to your accountant for a more accurate figure, but I think what I said was about right.

I hope this helps

Can't help you with trusts.

I guess if there is a pre-tax profit this would be a benefit as you can disribute the profits amonst the beneficiaries, and there may be some asset protection through one.

Maybe Richard or Terry could comment on that for you? Over to you, boys!

First you work out if there is a loss (income less expenses)

Income is $20,500

Expenses
$27,000

So there is a loss of  $6,500

This income, or loss in this case is added to your other income.

So if you earn $100,000 pa (after other work deductions), then your new income will be $93,500.
Your tax savings will be the tax on $100,000 less the tax on $93,500.

or, if you are on the highest rate (45% now in 2007, plus 1.5% medicare), then the saving will be $6,500 x 46.5% = $3022

And don't forget you may be able to claim travel to inspect the property, to the accountant, to the PO box, to the shop to buy things for the property etc. Also borrowing expenses.