Buying a rental property in Perth? The negative gearing option explained…

What is negative gearing?

Negative gearing occurs when tax accountants find that the net rental income after deducting expenses is less than the interest on the borrowed funds.

Basically, the investor ends up with a net rental loss at the end of a financial year.

How does negative gearing work for Perth buyers?

With the right negative gearing advice, you will be able to offset the total cost of owning property in Perth against assessable income.

This applies if the cost is higher than the rental income. The revenue will only become subject to tax after the rent has covered the cost of acquiring the property.

The tax benefits of negative gearing

Here are just some of the typical expenses that can be claimed with negative gearing:

• Interest on an investment loan
• It is fully deductible
• Shortfalls are offset in an individual’s taxable income, including rent and salary

• Ongoing repairs and maintenance
• These expenses are fully deductible

• Property fixtures and fittings
• They are treated as plant
• Based on its effective life, a deduction for depreciation is allowed

• Capital works
• Major additions on construction receive a capital works deduction of between 2.5% and 4% per year
• The percentage is applied to the initial cost until it is exhausted
• The amount claimed reduces the cost base for capital gains

• Property sale
• The capital gains on the proceeds are taxable, less the costs
• The net capital gain will be taxed as income
• If the asset was held for one year or more, the capital gain is first discounted by 50%

Investment advice for Perth property owners

Are you a property owner interested in the best tax planning service available in Perth?

If you’re looking to minimise your tax payments, Ascent Accountants is a certified, Perth-based accountancy firm providing a full accounting and business management service.

Call us on 08 6336 6200 to discuss solutions for your small, medium or family-owned/operated businesses.