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Tax impact of buying tenanted property with plan to convert to PPOR on end of lease

Discussion in 'Real Estate' started by isriharsha, 25th Aug, 2009.

  1. isriharsha

    isriharsha New Member

    25th Aug, 2009
    sydney, NSW

    I am planning to buy a first home and am in final stages of negotiation. The house is currently rented out with the tenant's lease running out in 6 months time. I am planning to move in soon as the tenant's lease expires and make this my PPOR. I know that I can qualify for FHOG if I occupy within first 12 months of settlement.

    However, I am not able to figure out the impact on my tax. I am going to be getting a rent of $550 per week on the house from the current tenant. Would I have to add it into my total income and pay tax on it?

    can anyone help me understand this?
    Thanks, Regards
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    You would need to declare all income you receive from rent, but you can also then claim all costs as tax deductions too for the period that your property is available for rent (ie before you move in).

    This means council rates, water rates, repairs (not improvements!), loan interest, etc are all claimable. If it works out that the costs are greater than the income you receive, then your overall taxable income will drop and you may end up getting a bigger tax return as a result (this is called "negative gearing").

    You may also have to pay some land tax for the period it is rented out, but once you move in you would be able to contact the OSR and let them know it is now your PPOR.