Negative gearing, everyone talks about it, but what is it? Sure, there are risks in negative gearing but there are also some real tangible benefits for investors. Being privy to correct and valid information can be an incredibly tax-effective investment strategy. Understanding the tax concessions in Australia is critical. Access to good advice will help you make those important decisions.
HOW DOES NEGATIVE GEARING WORK?
Essentially negative gearing saves on your taxes. If what you receive in rental income is less than the expenses you incurred when purchasing, renovating and maintaining your investment, you may have less tax to pay at the end of the financial year. This of course is tested against the income that you may derive from other sources. Investors may also experience long-term profit on their investment when the value of the property increases to a point greater than the outlay costs.
With brand new properties you can expense items such as:
- interest on the money you borrow and the associated costs
- capital items such as dishwashers etc in a rental property which are subject to depreciation over time and can be claimed over several years
- body corporate fees and insurances
- advertising and fees/commissions charged by property agents
- council rates and taxes
- improvements, repairs and maintenance such as cleaning or pest control services
In 2017, Australian taxation laws changed providing better tax benefits and deductions for new properties. In a nutshell, buying an investment property that is 10 years old, means that 25% of the total deductions are not considered. When buying new you are extended 100% of depreciable items. This can be a considerable difference to your ultimate taxable position. In addition, if you purchase a new property with common property like lifts, swimming pools, gymnasiums, fire services etc you will also benefit from those depreciation claims.
Tax concessions and depreciation, what is and is not allowed, is a complicated matter. Here at The PMC, our team of property experts decode and simplify the formula to give you the bottom line. With access to quantity surveyors, who are experts at assessing the value of construction work, we provide you with an estimate of depreciation claimable on the new property you are considering purchasing.