To ensure you maximise the tax benefits of property investment, it is important to understand how your property is geared. Where funds have been borrowed to invest, the type of gearing differs:
Negative gearing occurs when the total rental income of a property is less than the total costs of owning the property. Whilst a negatively geared property will put investors out of pocket initially, the capital growth is expected to offset any initial losses over time. Investors may also be entitled to a reduction in taxable income if they own a property that is negatively geared: the amount of property deductions claimed can result in a lower overall tax rate.
Positive gearing occurs when the total rental income of a property is more than the total costs involved in owning the property. A positively geared property can give you a desirable secondary income – however, it is taxed according to your current tax rate.
To help you determine the best gearing strategy for your individual circumstances and your investment property, it’s always best to seek expert advice. The Australian Tax Office (ATO) provides a great starting point, with information specific to property investors: https://www.ato.gov.au/general/property/residential-rental-properties/
Using an accountant to prepare your tax return can ensure you are obtaining all possible deductions, plus their fees are a tax-deductible expense for property investors. If aiming to negatively gear your investment, appointing a quantity surveyor will give your individual property its own depreciation schedule – this can be used to maximise tax deductions for the depreciation of your property’s value.
For more information about investing or to find out more about how our investment growth strategy can help you, contact our award-winning property management team on 9091 1400.