At Barker-Smith Rental Properties are our specialty!
We’ll ask you all the relevant questions and make sure you claim every deduction you can.
We’ve assembled some common terms below to get you started. We also have available a rental property checklist to give you a guide to types of expenses you should be looking for.
The ATO also have a comprehensive section on rental properties on their website which you can access here.
Also check out their “Top 10 tips to avoid common mistakes” and for even more detail you can download and read the ATO publication “Rental Properties“.
What is “Negative Gearing”?
Gearing in it’s simplest form is when an investor uses borrowed money (a loan) to purchase an investment that generates income.
“Negative Gearing” is when the interest on the loan exceeds the income generated (ie creates a “loss”). Negative Gearing is normally associated with Investment Properties, however the concept applies equally to shares.
Investors can also include other expenses relating to the investment (such as agent’s management fees, some repairs and maintenance and depreciation – see below) to increase the amount of the loss, and hence the “negative gearing”.
What is Depreciation?
Depreciation is a deduction for the “decline” in value of an asset based on it’s effective life. It is probably one of the best deductions you can obtain but is often overlooked by investors.
For rental properties (subject to certain conditions) depreciation is available on both the building itself and the fitting and fixtures attached to the property. Where the property is part of a larger complex (like an apartment), then owner’s can also claim part of the depreciation for “shared” assets, like elevators, gates and pool equipment.
The easiest way to maximise your deduction for your rental property, is to obtain a depreciation report (also called Quantity Survey) on your property.
We can refer you to a reputable firm to carry out the inspection, and the fees are 100% tax deductible.
You generally only need to obtain a depreciation report once. We will then maintain the depreciation schedule as part of your ongoing rental property tax return.
Please note there have been changes to the rules around claiming depreciation on “used” assets for properties purchased after 7:30pm on the 9th of May 2017.
For further information please contact us or read this article from Quantity Surveyors BMT.
How should I structure my borrowing?
Before you start looking for an Investment property you need to make sure your finances are structured correctly.
It is critically important that borrowings for investment are kept completely separate from personal borrowings.
Trying to correct this at a later date can be difficult, time consuming and costly.
As a general rule of thumb, make sure that all borrowings for an investment are made in a separate loan account.
Don’t use part of your existing home loan to fund an investment property purchase.
A quick phone call to our office BEFORE you see your bank or broker can save you thousands in the future.