BEAN THINKING: INVESTMENT PROPERTIES
What is negative Gearing?
It is popular among property investors to have a property “negatively geared”.
Don’t be fooled by the fancy term though. In basic terms it means that your property is making a loss.
This loss is generally able to be offset against your taxable income. Whilst the property is making a loss, it is important that the property is increasing in capital value, so that the after tax loss is eventually recouped.
While the rental loss is deductible for income tax purposes, having the tenant pay for some of the occupancy costs will assist your cash flow.
Having a lease agreement in place provides the opportunity to address what additional outgoings the tenant is to cover. For residential tenants, this may be excess water charges or land tax and rates for commercial and industrial tenants.
As the property owner, the following expenses are usually deductible:.
- Council Rates
- Body Corporate Fees
- Interest on borrowings
- Repairs and Maintenance
- Land Tax
Depreciation on fixed assets is also an eligible deduction, and contributes to your negative gearing without impacting on your cash flow.
A Quantity Surveyor’s (QS) report is an inexpensive way to maximise your annual depreciation deductions. The report identifies every asset on the property and construction costs to determine and discloses each year’s claim. Plus, the cost of acquiring the report is also deductible.
Beware that the ATO are also looking at investors to ensure that capital expenditure is being treated correctly. A QS report will ensure that you meet your obligations.
It is important to note, to actually claim a deduction the property must be rented or available to rent.
If the property is not advertised or you have used the property for private purposes you are unable to deduct any expenditure during this period. However, keep a record of these costs as they are not lost.
If you would like more information, please contact us. We are more than happy to discuss these matters with you in more detail.