One of the recurring questions I get asked is "If I buy a rental property, how does that affect my tax position?" Here is how.
- Rent and other associated payments (e.g. Bond) that you receive would be declared on your tax return as rental income
- You can claim a deduction for certain expenses you incur relating to the rental property. The most common of these expenses are interest on the loan, council rates, water charges, insurance, property agent fee/commission and depreciation on capital items.
- If the rental income is more than the deductible rental expenses then the net rental income would be added to your other income (e.g. Salary and Wage, Business Income, etc) to determine your taxable income.
- If the rental income is less than the deductible rental expenses, then the net rental loss would be taken away from your other income (e.g. Salary and Wage, Business Income, etc) to determine your taxable income.
Example:
Salary income of $50,000, rental income of $25,000 and rental expenses of $15,000. The amount of income you would have to pay tax on is $60,000 (i.e. $50,000 + $25,000 - $15,000).
If the rental expenses in the above case were $30,000 then the amount of income you would have to pay tax on would be $45,000 (i.e. $50,000 + $25,000 - $30,000).
Suresh Rajani is
the Business Leader at Tax First - an
accounting and business advisory firm located in Adelaide, South
Australia.
