Gearing

Positive Gearing

A positively geared property means that the rent received from your investment property is greater than the costs of owing it, including interest repayments, local authority rates, insurance and maintenance expenses. Cheap properties paying high rents tend to be thin on the ground. We can locate such properties for you from time to time and when available they are usually snapped up quickly. If you want a positively geared property ask Investrend today.

To generate a positive cash flow, investment costs must be lower or equivalent to the income received from the property, taking into account your rental yields combined with tax breaks. If construction of an investment property commenced after 19 July 1985 you are entitled to depreciation allowances that will enable you to claim “paper losses” to reduce your taxable income.

The benefit of a property that generates a cash flow is realized when you sell the investment property sometime in the future. This is because you won’t have to subtract the losses incurred over the life of the investment, as is the case with negatively geared properties.

In the final analysis, prospective investors should always apply the fundamental rule always applied by Investrend of buying the right property in the right location at the right price. With capital growth as the ultimate goal these three elements are vital.

Negative Gearing

Tax relief is one of the benefits of direct property investment. Direct property investment involves the purchase of property rather than investing in property trusts. Suppose an investor purchases a property using borrowed funds and the interest repayments, together with other expenses, exceed the income from the property. With negative gearing, depending on your personal circumstances, some of the losses may be deductible from your taxable income. However, we strongly recommend that your investment decision should be driven by the viability of the asset – not just by the desire to minimize tax.

So what tax deductions are actually available to a property investor?

Deductions, or expenses, may be offset against rental or other assessable income. Expenses that can be deducted from the rental income include:

loan interest;

body corporate fees;

local government and water rates;

land tax;

gardening expenses;

costs associated with advertising for tenants;

depreciation:

Stamp Duty;

Maintenance Expenses;

Depreciation refers to the writing-down of the cost of an asset over its estimated life. This form of deduction is allowed for assets such as furniture, carpet, and washing machines. You can claim a proportion of each item of depreciable assets each year over its effective life.

There are different ways of calculating your depreciation. The one you choose should be decided in consultation with your tax advisor.