Basic Tax Questions

Discussion in 'Accounting & Tax' started by Bean27, 15th Apr, 2019.

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  1. Bean27

    Bean27 Well-Known Member

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    Hi all

    Just wanted to ask some basic questions here to make sure my understanding is correct.

    Lets say I have an investment property that gets $600 a fortnight rental income. Say my re payments are $500 which means 360 is interest as an example. You can claim the interest payed as a tax deduction, so does that mean I claim that 360 as a tax deduction against the 600 earned? I realize it is worked out over a full year but just using this as an example. Also what is the difference if the property is positively geared compared to negatively geared.

    Thanks
     
  2. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Hi Bean
    That sounds ok. But you do know interest expense is only one of the expenses claimed, right?
    If overall income is higher than the expenses incurred for the property, then you pay tax on that income at your marginal tax rate.
     
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  3. Bean27

    Bean27 Well-Known Member

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    Thanks, so what are some other examples of deductions? Repairs, maintenance. Theres also depreciation? Although I don't understand that at all.
     
  4. Angel

    Angel Well-Known Member

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    With calculating what you can claim as a tax deduction, you cannot claim the full $500 P&I repayment, only the $360 interest. At this point your property is, (as far as I am aware) regarded as positively geared. However you can then claim the other costs associated with receiving this income, such as council rates, insurance, management fees etc. This then often makes the property cashflow negative or cashflow neutral.

    Is that what you meant?
     
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  5. Angel

    Angel Well-Known Member

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    Depreciation is like "how long is a piece of string?" - it is an amount that is calculated based on precise details of that one property. It cannot be easily calculated by strangers on a public forum. It usually reduces each year. That is why I dont include it in my own cashflow calculations.
     
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  6. Bean27

    Bean27 Well-Known Member

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    I don't have an investment property yet, I was just trying to learn all of the things you can claim and understand what makes it negatively geared etc yes I understand you can only claim the interest portion. So you can claim rates, water, property management and insurance as a deduction? What about land lords insurance?

    Cheers
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The amount your repay is not relevant. It is the interest you are charged. And all other deductible ownership costs.

    So rent - deductions = taxable amount (or loss). Also allow for non-cash deductions

    Its all explained in our PAS TV video series which breaks it down for income, expenses etc

    PAS TV Playlist
    Also grab a copy of the ATO rental property guide 2018 (or 2019 when issued) and get familiar with the concepts.
     
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  8. Angel

    Angel Well-Known Member

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    Whenever you spend money on repairs and maintenance, it will depend on what exactly you purchase as to whether it is immediately claimed as a tax deduction that year or whether it is classed as a capital expense. Capital expenditure is later included in the capital gains calculations when you sell.
     
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  9. Angel

    Angel Well-Known Member

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    Of course LL insurance. + cleaning, Termite inspection and pest treatment
     
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  10. Bean27

    Bean27 Well-Known Member

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    Good to know for the future, doesn't look like you would pay a lot of tax if you a smart
     
  11. Bean27

    Bean27 Well-Known Member

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    here is an example of if I did rent my own property

    Rental Property tax deductions example Percy street

    Interest 9360 a year
    Rates 1560 a year
    Water 1200 a year roughly
    Insurance 1300 a year
    Property Management 1672
    Maintenance 1500
    Land lords insurance
    Land Tax

    Rental income 15600 a year Deductions- 16592.

    Obviously from the numbers it is negativity geared and I have more deductions then income and have not included everything. So does that mean I would pay $0 tax on it? and claim the loss as negative gearing?
     
    Last edited: 15th Apr, 2019
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    No - These inspection and treatment costs are likely to be initial repairs AND capital expenditure.
    Not deductible but possible Div 43 capital allowances

    Initial cleaning isnt also deductible
     
  13. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Tax loss of $992 will be offset against your income, and you will get tax back based on your tax rate.

    At least under the current rules :)
     
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  14. Bean27

    Bean27 Well-Known Member

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    Thanks makes sense :)
     
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  15. Beano

    Beano Well-Known Member

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    No " you would pay a lot of tax if you are smart "
    Because smart people make a lot profit and pay a lot of tax :)
    I want to pay $1m in tax :)
     
  16. Angel

    Angel Well-Known Member

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    Thanks Paul. I tell the accountant what the various items/costs are and he puts them into the correct columns.
     
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  17. MWI

    MWI Well-Known Member

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    There are lots of useful examples by the ATO about expenses you can claim for investment property. Just google read and learn...
    Rental property expenses
     
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  18. datto

    datto Well-Known Member

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    Can the granny flat out the back be a cashie? hehehe:)
     
  19. Bean27

    Bean27 Well-Known Member

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    So renting out part of your PPOR how does that work? It says anout floor space. Do you claim for example 35 % of the interest you pay on the loan or 35 % of everything? ie rates water etc
     
  20. aussieB

    aussieB Well-Known Member

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    How can you include Water charges ?