If I was to purchase a property purely for investment purposes, and it was purchased outright for say $100000, would I recieve the tax proportion of the $100000 back as a tax deduction?
I don’t quite get your question. The property is an investment, rent is your income & running costs, interest, depreciation etc are deductibles.
FrugalOne wrote:If I was to purchase a property purely for investment purposes, and it was purchased outright for say $100000, would I recieve the tax proportion of the $100000 back as a tax deduction?No. The outright purchase is a capital cost and not deductible against rent or other income.
The purchase price forms the cost base for capital gains tax purposes, when the property is sold.
Are you talking about getting a tax deduction on your income?
You only get a tax deduction on your regular income if the property makes a loss. That is if your expenses are higher than your income.
Generally this happens when you have a mortgage and your mortgage payments (and other expenses) are higher than the rent coming in. Say mortgage+expenses = $500/week rent=$400/week. You would then be able to claim $100/week as a tax deduction. Plus you can add in capital expenditure and depreciation.
Don't take this as financial advice though, every situation is different and this isn't the case for every property. See a financial advisor.
Ryan McLean | On Property
http://onproperty.com.au
Email MeFrugalOne wrote:If I was to purchase a property purely for investment purposes, and it was purchased outright for say $100000, would I recieve the tax proportion of the $100000 back as a tax deduction?No. Think of it as having 100k in cash and then buying 100k property. You have not lost the 100k. You have simply transferred it from cash holdings to property holdings. Therefore cannot claim.
No different from a car. If you buy a car for 30k and pay cash. It is again transfer of asset from cash to car. Cannot be claimed.
If the asset you purchase reduces in value. You can claim reduction in value as a loss. This is usually referred to as depreciation which is claimed annually.
In the case of property or any other asset in a balance sheet (in a company) there is a written down vale. That is the property value less depreciation claimed.
Therefore when you do claim depreciation. The tax benefit is largly short term only. It hits you at the end when you sell and pay capital gains.
E.g.
Purchase 100k (cannot be claimed)
Reduction in value (fixtures, fittings etc) 10k claimed over several years.Written down value is now 90k
If you sell for 120k you pay capital gains on 30k rather than 20k.
I lot of people doent realise this when they claim depreciation….A lot of accountants also dont account for it properly.
Banker
Just to clarify the Cost Base is only redcued by the amount of Div 7 Capital Allowance you have claimed and not the Depreciation on the internal fixtures and fittings.
Once this is claimed it is not repaid when you sell.
Richard Taylor | Australia's leading private lender
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