Positive & Negatively Geared Rentals

Taxation and Rental Properties

So, you are travelling along nicely and are looking for a place to invest some of your extra cash and to save some tax. You have probably heard that by having a rental property you can pay less tax. The term ‘negative gearing’ may have also come up. Have you heard this phrase and ever wondered what it means? Have you thought about a rental property and wanted to know how it would impact your etax return?

Keep reading to find out.

Are you thinking of buying your first rental or just have, and want to know what you need to declare on your etax return?

Let’s get the obvious out of the way first, income. The amount you receive from tenants during the year is entered on your etax return as taxable income. The income is then reduced by the expenses (tax deductions) you had to maintain the rental property. The main expenses claimable are; council rates, water, insurance, repairs, agent fees, and interest charged on loan. If you completed some renovations or bought some new assets, (oven, aircon) then we can assist with writing these items off over their lifetime. Once you have your income and tax expenses, use our rental property section to enter these details easily into your etax return. So, how is this going to impact my tax return?

This is where gearing comes into it. If you have borrowed money to invest you are doing what is called gearing. There are two types of gearing, positive and negative. If the rental income is more than the rental expenses, then your property is positively geared, woo hoo a great investment. If the rental income is less than the rental expenses, then your property is negatively geared. Generally, the main expense for a rental property is the loan interest (those darn banks). If you have had to borrow a significant amount your interest is usually high, and the property is likely to be negatively geared.

How does the type of gearing affect your etax return?

We discuss this in Part Two of our blog…

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Note that the information provided is general in nature and subject to change, please contact one of our professionals who can evaluate your circumstances and provide more accurate advice to your current situation.