When it comes to property investments and tax there are 3 main things to be aware of:

  • Negative gearing.
  • Tax deductions.
  • capital gains tax.

Negative gearing

Negative gearing is when the annual cost of your investment is more than your return. Basically, when the cost of maintaining your property and paying the interest on your loan is more than the rental income you get from it, you are negatively geared.

When this happens the government allows you to deduct the costs of your property from your gross income. So say your income is $60,000 a year but your property costs you $15,000 a year, you'll only need to pay income tax on $45,000.

This way you'll pay less tax, but don't be mistaken, it is still a loss -just a smaller one – that hopefully will be more than made up for by the property's increasing value. You probably won't see a return on your investment until you sell the property, and only if it's for a much better price than you originally bought it for.

Tax deductions

Whether you are negatively geared, or getting a positive income stream from your property, you can claim expenses relating to your rental property for the period your property was available for rent.

All the following expenses can be claimed:

  • Advertising for tenants, agents fees and commission.
  • Interest payments and loan fees.
  • Council rates, land tax and strata fees.
  • Depreciation of items such as stoves, fridges and furniture.
  • Repairs, maintenance, pest control and gardening.
  • Building and landlords insurance.
  • Stationery, phone costs and any travel to inspect the property.

The above is not a full list of what you can claim. Get proper advice from a tax expert before putting in your return.

Capital gains tax

What the Government gives with one hand, it takes with the other. Capital gains tax is a tax on the profit you've made on the property. So it's based on the difference between what you sell it for and what it cost you (the purchase price plus anything you have spent on capital improvements or renovations).

Definitely get advice on what you might be up for when considering selling your investment property.

Continue to information about managing your investment.