Thinking of Purchasing a Rental Property?

Negative Gearing

  • Negative Gearing is a term most commonly used in relation to the borrowing of funds for the purpose of purchasing a rental property
  • The interest costs on the borrowed funds and most other expenses related to running the rental property are deductible
  •  A rental property is negatively geared when it is purchased with the assistance of borrowed funds and the combined amount of expenses exceed the rental income from the property and a loss is incurred
  • This loss becomes a tax deduction and is able to be offset against other assessable income earned during the year (e.g. salary, wages or business income) – this enables either a reduction in tax payable or a larger tax refund
  •  The largest part of the deduction is typically the interest portion of the mortgage
  • When claiming expenses the rental property must be for income producing purposes
  • There are basically two categories of rental property expenses that may be claimed:
    • Deductions
      • Wholly deductible in the year of payment
      • Expenses for which you can claim an immediate deduction in the income year you paid them such as council rates, repairs, insurance and loan interest
    • Depreciation & Capital Works
      • Deductible over a number of years
      • Expenses that are deductible over a number of years are typically the cost of capital assets (such as a new hot water system) through an annual depreciation expense

Deductions

  • Advertising for Tenants
  • Body Corporate Fees/Strata Fees
  •  Cleaning
  • Gardening
  • Insurance
  • Land Tax
  • Legal Expenses
  • Pest Control
  • Property Management Commissions & Fees
  • Electricity/Gas
  • Repairs
  • Office Supplies
  • Travel
  • Rates
  • Lease Expense
  • Quantity Surveyor’s Fees

Depreciation & Capital Works

  • Capital assets are not fully deductible in the year of purchase because the deduction ie depreciation, is spread over the useful life of the asset purchased
  • Useful lives vary depending on the type of asset purchased
  • A special building write off is able to be claimed by the rental property owner in special circumstances based on the actual cost of the building to the owner
  • If a new owner is unable to determine the construction cost associated with the rental property an estimate provided by a Quantity Surveyor can be obtained

Other Expenses

  • Buying & Selling Costs
    • Costs of buying or selling your rental property are not deductible
    • Buying and selling costs are classified as capital in nature and are added to the cost of the property
  • Borrowing Expenses
    • Costs incurred in borrowing money used to purchase the rental property are not deductible upfront but are deductible over the lesser of either the period of the loan or five years
    • Borrowing costs include mortgage insurance, title search fees, registration of mortgage, stamp duty on mortgage and loan establishment fees
  • Variation of Tax Installment Deductions
    • For further information contact Personalised Tax Services

Disclaimer

  • Generally speaking the information provided is relevant only to South Australia
  • The information provided in this package is for your general information only and should not be relied upon in any specific situation
  • You will need to contact Personalised Tax Services and ensure advice relevant to your specific situation is obtained
  • We disclaim any liability to you based on the information contained in this package or your use of the information in this package generally
  • If we can be of any further assistance to you please contact Personalised Tax Services.