I am thinking of buying an investment property with the equity from my current property. The amount I can borrow is up to $300,000.00 with repayments weekly of $398.65 over 25 years with interest only currently at 6.91%. If we rent for $300.00 a week we are at a loss of $98.65 plus the strate fees and rates. Can anyone explain how you get tax incentives and how the loss is made up? What can you claim how does it all work please help
There's a lot to answering that question - best start is to get a book by Jan Sommers or John McGrath on the basics. Some expenses (rates, body corp etc) are claimable directly against income , others are capital in nature and either amortised (eg, depreciation claims) or offset eventual capital gains tax (if you sell). It is quite possible to get a negatively geared property that, after tax returns, makes a small cashflow profit. Its also possible to get cheaper IPs that are positively geared, and IPs that are negatively geared and still negative cashflow after all deductions (which you'd buy if seeking captial gains). All depends on your strategy. Note; if you get one that is cashflow negative or negatively geared but only slightly cash-flow positive after claims, the strategy is generally a waiting game. Over time = deductions for depreciation will decrease and expenses will increase (eg, council rates), rents will / should go up, but the loaned amount stays the same. On balance, the -ve geared property will eventually turn +ve (can take 6 - 14 years), with capital gains outstripping what you could ever save. Hence, you can't look at the loss from purely an immediate or short term - it's the long term result you need to focus on. Property Investing is a great get rich slowly scheme! Dave
RE: Hi Buster The ATO website is a good starting point. You can even make a free appointment for a ATO rep to come and see you. Do you have an accountant who knows property? That also would be a good place to begin your investigations. Get hold of API or YIP Magazine. Good current information. Safe travels...
You can claim all your shortfall between rent and interest payments plus strata fees, maintenance, trips to the property, depreciation, management & accounting costs. You collect all receipts, hand them over to your accountant and then wait for your refund cheque to come in. If you want to get the tax benefits straight away, you can fill out an ATO form (ITWV) and they send a letter to your employer telling them how much tax to deduct from your salary. PAYG withholding variation application 2010
Buster, The other posts give some guidance where you can obtain information. In essence, the tax department regards rental income as taxable income which you need to include in your annual tax return. You add the rental income to other income you earn, wages, salary, overtime, dividends, interest etc. You are able to claim costs associated with earning that income, so for an investment property (IP), these can include interest on any loans associated with purchasing the IP, body corp, insurance, repairs and maintenance, agents fees etc. It should also include depreciation of fittings and fixtures and possibly building allowance (depending when the IP was built). If the costs of the IP are greater then the income, it is described as being negatively geared and the effect is to lower your overall taxable income on which the ATO calculates income tax on. If an employer takes out PAYG on each pay, you have the option to wait until year end and get a tax refund or put in an income tax variation form which allows your employer to reduce the income tax taken out each pay. The effect will depend on your marginal tax rate. Without knowing your income details or property, at 6.91%, you could be looking at a loss of $13k to $18k per annum to claim against other income. I hope this helps. Greg
