Owning an investment property isn’t just a long-term investment strategy, negative gearing, as well as claiming depreciation and expenses is an effective way to minimise your income tax.
The term gearing is for when you borrow money to invest, therefore, negative gearing is when your costs of investing are higher than the returns achieved. Essentially, if the annual net rental income of the investment property is less than the sum total of the interest paid, bank charges and any other deductible expenses that are associated with maintaining the property, such as management fees, maintenance and repairs – you are said to be negatively geared.
Owning an investment property that is negatively geared means that you can deduct the costs of owning the property from your overall income, thus reducing your tax liabilities.
One of the most important but regularly overlooked keys to managing the tax position of your investment property is engaging an expert Quantity Surveyor to prepare a depreciation schedule, therefore ensuring that you are claiming as much as possible and maximizing the returns on your asset.
If you are intending to renovate the investment property, this is even more important as you may be entitled to an outright tax deduction on the residual value of part of the property that is being renovated.
Prior to any demolition, construction or renovation being undertaken, it is of vital importance that you get the depreciation schedule prepared, or you risk the possibility of missing out on the tax deduction entirely.
Claiming Expenses for your Investment Property
In addition to depreciation, there are a numerous expenses in relation to rental properties that can be claimed. Some of these include:
|advertising for tenants||bank charges and borrowing expenses|
|body corporate fees and council rates||gardening and lawn mowing|
|pest control||property agent fees or commissions|
|repairs and maintenance||stationery|
|travel undertaken to inspect the property or collect rent|
There advantages to owning an investment property are many fold, reducing your tax payable is just one of them, if you would like any further information on investing in property please don’t hesitate to contact us.
The contents of this document are intended for information purposes only and may contain personal opinions of the author. It is not intended to be a substitute for specific financial or legal advice. Before making any investment property decisions you should consider your personal situation, objectives and needs. While all reasonable care has been taken in the preparation of this information, we take no responsibility for any actions taken based on the information contained in the article or for any errors or omissions.