Investment properties are popular investment choices. Being aware of the tax implications can help you to maximise your benefits. But it is worth stating up front, that the tax costs can be very significant and you really should consult Saward Dawson before purchasing an investment property so that we can help you understand the various scenarios.

All rental income must be declared in your tax return. You can also claim deductions for rental-related expenses.

Positive or negative

If your rental income exceeds the allowable deductions, your investment is positively geared and you will pay tax on the difference at your marginal tax rate. However, if the allowable deductions (especially mortgage interest) exceed the rental income, then the property is negatively geared and the balance of expenses can be claimed against your other income such as salary.

Much more to it though…

It is worth noting that the Tax Office allows negative gearing on the assumption that eventually properties become positively geared and will become taxable. So there is so much more to consider than just negatively gearing the property when you first acquire it.

The ownership structure is very important to consider. Getting this right will certainly affect how much your deductions will return or how much tax you need to pay on rental income.

Of course, Capital Gains Tax on the sale of the property can be a very significant amount that can at least be estimated before you purchase the property. And the list of other things to consider goes on.

We strongly recommend talking to us before you take the big step of purchasing an investment property. It can be very worthwhile but doing it fully informed is certainly the way to go.