Investment properties have been chosen historically to create wealth and because of the hard work that goes with to becoming a property owner and channelizing your income into properties, the ATO also supports investments in properties by allowing certain tax benefits to investment property owners. This is because such investment contributes to the economic development on a very large scale. For an investment property owner, you get some short-term and long-term tax benefits which we have discussed in this article further.

Assessable income

Investment property yields rental income and this income is assessable income. Other income such as reimbursements from tenants or even bond money, insurance payout that has been withheld by the landlord in place of unpaid rent is considered as assessable income.

Rental outgoings

Any expense that you incur for the investment property in the event of receiving rental income are tax deductible. Such expenses include council rates, general repairs, property agent fees, mortgage loan interest etc. There are also borrowing expense like lenders mortgage insurance and depreciation that can be claimed over several years from the date of purchase of the property. The expenses that do not count as rental expenses are expenses incurred in the absence of rental income or even if the property was not made available for rent or for a vacant block of land.

Positive or negative gearing

If your total rental outgoings are lesser than the rent you receive then you have made a rental profit and this profit is taxable in your income tax return. This means that your property is positively gearing your taxable income as it maximizes your taxable income. Likewise, if your total rental outgoings are more than the rent you receive then you have made a rental loss and this loss can be claimed against other income like salary and business income and overall minimizing your taxable income. This means that your property is negatively gearing your taxable income.

When you sell your investment property

The profit that you made on the sale of an investment property is taxable. This is because the property is used for commercial purpose for producing income. The tax paid on profit is Capital Gains Tax (CGT). There are certain situations when the CGT is reduced when there are joint owners on the title, property held for more than 12 months or if there is private use of the property.

We are happy to assist you in working out your costs, capital expenses, rental expenses and also providing investment property related tax advice. Feel free to call us on 0452214559 for a no obligation phone call or email us at info@ps-accountants.com.au.