Renting - IP - Mortgage

Hi Guys,

Have a bit of a scenario and don't know what to do.

We are currently living in a house(owner/buyer) with a mortgage (principal & Interest) and we are looking to move. The house we are currently living would fetch about $300 a week. We aren't looking at purchasing another property where we are going to as it is not financially possible yet and the rent would be approx $450 a week.

Can anyone give any idea's on the tax implications or scenario's around this?

Thanks

 

The rent would be income. But against this you can claim all the usual costs associated with the property such as interest, rates, insurance etc. You can also claim non cash costs such as depreciation of building and fittings.

I would suggest you change the loan to interest only with a 100% offset account attached before you rent it out.

Normally rental properties are subject to CGT, but since this is your main residence you can rent it out for up to 6 years and avoid paying CGT under certain circumstances - such as not counting any other property as your main residence during the same period.

 

Ok thanks Terryw,

In regards to the depreciation of buildings and fittings how much/how often can these be claimed?

I did a rough calculation that the income less agents % would be approx the same as what the interest amount would be. therefore not "earning" anything from the property. That being said the depreciation would bring our overall taxable income down resulting in a healthy return.

Thanks

 

Depreciation can be claimed for the life of the asset. You would need to get a depreciation report done by a quantity surveyor, but it would be worth the cost.

Buildings can be claimed at 2.5% pa for 40 years if built after 1986 (i think). Carpets etc may be 5 years or so.

 

Thanks again, this makes it sound a more favourable option than selling...