Hi, newbie question, if my IP is vacant for a year, and im covering the mortgage, lets say its 25000 annually in repayments, how much roughly could i expect to see back in my tax return?
That is dependent on a whole bunch of variables. Contrary to popular belief, there is no such thing as a negatively geared or positively geared property - it all comes down to the individual's earnings, loan structure and outgoing expenses. Someone would need much more information to be able to answer that and it's probably not something you'd want to post in public. We do post-tax cash flow reports for clients that take quite a bit of time to answer these sorts of questions so if you don't have access to someone who can do those for you, then speak with you accountant. Remember, to be able to claim tax deductions the property must be available for rent or producing income. You cannot deliberately leave it empty for a year just to generate tax write offs. - Andrew
Hi Andrew, its just a hypothetical and i used that figure because its an easy number, i just thought there might be a ball park percentage i could work with while i do some quick sums before i meet with my accountant next week. does anyone have any experience
Hi jeeper, I have plenty of experience but it appears you're not understanding how the tax system works. If you earn $18,000 a year for example, you will get nothing back. If you earn $350,000 a year, you will more than likely get much more back. Again, there are too many variables to even give you a ball park figure. Is your depreciation in the first year $15,000 or is it $1000? Depends on the property. Is it a strata building where you're paying $5000 a year in levies or is it a small established house where your rates are $700 a year? Is the rent $1000 a week or $250 a week? It's literally impossible to give an answer to your question based on the information you've provided unless you want a ball park figure spanning tens of thousands which all but renders the answer pointless anyway.
Why would you want to have your IP vacant for a year? Or is it in a mining town-ghost town and it is impossible to attract a tenant
As an extremely rough example: you reduce your total taxable income by the loss on your IP. So, for example, if your total taxable income was $100k and your IP ran at a $25k loss then your total taxable income will be $75k. Stick the $75k figure into the ATO tax calculator and it will estimate how much tax you should pay. Then look at how much tax you actually paid and the delta (difference between the total tax you paid and what you should have paid on the $75k) is what you will get back as a tax refund. As My PropertyPro pointed out...there are a lot of variables that need to be taken into account--the main two being what was your actual taxable income accounting for deductions such as your loss making IP and how much actual tax did you pay--to accurately determine what if any tax refund you'll get. I hope this very rough example explains how it works.
But what are the exact rules on this??? I thought in order to claim a loss it had to be "income producing". Vacancy for over 1 year doesn't seem very income producing to me! The ATO may just look at this and decide it's a holiday home.
It does. As per my post above, it must be producing income or available for producing income i.e. available for rent. If you're audited, the ATO will obviously determine whether this was the case. You also can't deliberately rent it out below market rent to create a loss although this is obviously subjective and you would have to support your claim. It's to stop people renting out their house to a family member (or examples like this) for $1 per week when market rent is clearly $500 p/w.
What is the ATO's view on holiday houses also used for AirBNB? Say 20 weeks used as a holiday house and 32 rented on AirBNB?
The time would be apportioned on a daily basis. i.e. Was available for rent 225 days and not available 140 days then it would be (225/365) x 100 = 62% of total (normal) expenses available as deductions for the gained income. I should qualify this information by stating I am not an accountant and that you should always consult one prior to making tax based decisions. I only know these things from personal study and years of personal experience. I have no formal qualifications in tax. - Andrew
Not necessarily Terry. I have a friend who made a very bad decision buying a house in Collinsville right before the collapse in Queensland mining and had it available for rent at all sorts of price points for over two years to try and get someone in. They were actually audited by the ATO and all deductions were allowed. To get an idea of how bad the market was (and still is), check these out! SQM Research - Residential Vacancy Rates COLLINSVILLE, QLD
Yes if it is genuninely available for rent and continued efforts are made then the interest could be deductible. But unless it is in a mining town or whoop whoop the time period shouldn't be more than a year. I suspect the op's situation is different.