Owning an investment property can be far more affordable than you think, particularly when you claim all of the tax deductions available. To explain how claiming these deductions can assist, let’s examine two average Australian taxpayers:
Bill who feels he can’t afford an investment property and Kate who owns one investment property. The Australian Taxation Office allows income producing property owners to claim a number of deductions for expenses involved in holding a property. These would include property management fees, rates, interest, repairs and maintenance. Investors are also entitled to a non-cash deduction for the wear and tear on the structure of the building and the fixtures and fittings within the property over time. This deduction is known as property depreciation.
Kate VS Bill.
Kate earns the same salary as Bill, however she has purchased a three bedroom rental property for $600,000 just over one year ago. Her property is rented at $545 per week, a total rental income of $28,340 per annum. The income earned from Kate’s investment property is also taxable, therefore her total combined income equals $113,340.
Kate is also able to claim deductions for expenses involved in holding the property, such as management fees, insurance, rates, interest, repairs and maintenance. These expenses for a typical three bedroom property would amount to around $39,067. Kate also obtained a tax depreciation schedule from BMT which showed she could claim an extra $14,200 in depreciation deductions in the first nancial year.
The results are in…
From the picture you can see Bill takes home $63,293 income after paying $20,707 in taxes. Kate earns the same take home wage however her income-producing property entitles her to claim $53,267 in deductible expenses including depreciation. This further reduces her taxable income to just $59,073 making her income tax payable $11,814. By maximising the property deductions and claiming depreciation, Kate’s property is costing $35 per week to own after tax.