If a rental property is purchased with borrowed funds and the net rental income, after deducting other expenses, is less than the interest on the borrowings, the property is said to be negatively geared. Taxation result of a negatively geared rental property is that a net rental loss.
What are the tax benefits?
- Tax Refund: This rental loss on negatively geared property reduced your overall employment income by the negatively geared amount and thus puts your taxable income into lower bracket. The tax difference between the upper bracket and lower bracket which you will be on now creates additional tax refund.
- Capital growth: The rental property might appreciate in the value and you may earn Capital Gain and reduce that by 50% subject to certain conditions.
What deductions can be claimed against rental Income?
- Advertising for tenants
- Body corporate fees and charges
- Borrowing expenses
- Council rates
- Deductions for decline in value (Additional Depreciation Schedule is required, but it is very beneficial)
- Gardening/lawn mowing
- Interest on loan(s)
- Land tax
- Legal expenses
- Pest control
- Property agent fees/commission
- Repairs and maintenance
- Capital works deductions (Additional Depreciation Schedule is required, but it is very beneficial)
- Stationery, telephone and postage
- Travel expenses
- Water charges
- Sundry rental expenses
Tax benefits of Rental properties are not for everyone. But it can be beneficial for you if you are high income earner and pay lots of tax. Check more about negative gearing here: “How to lodge rental property tax return”