Obtaining and Owning a Rental Property

It is vital to keep receipts. You will want to claim absolutely everything you are entitled to, and to do so you will need every receipt. You will also need to keep track of all income generated along with all the expenses relating to the rental property. Also note that repairs and maintenance are separate from depreciation, so keep these receipts also.

Timing of purchase and sale is vital. You may choose to sell at a certain time so that you can file the tax associated with that sale in a particular financial year, so you are able to offset the gain/loss against future gains or losses. Your accountant will be able to assist you in this process.

Rental properties can be time consuming and require constant investment on the owner’s behalf, but they carry a lot of benefits with them. Not only do they increase your capital portfolio, but they can also provide;

  1. A stable source of income through rental fees.
  2. Opportunity to make a profit on the sale of the property.

There are other ways of obtaining property other than buying it outright.

  1. You can inherit a property or receive it as a gift.
  2. Receiving it as a prize.
  3. Having it transferred into your name as a result of a divorce.
  4. Buying the property with someone else. This can be tricky because you must divide the income AND expenses.
  5. Financing it through debt (negative gearing).

Negatively Gearing Rental Property

A popular way to save tax through a rental property is to finance the purchase of the asset through debt. This would mean the expenses relating to the property are in excess of the income generated. As a result, your taxable income is then decreased due to the financial loss associated with the rental property.

The goal of negative gearing is that it;

  1. Reduces taxable income in the short run.
  2. The final sale price of the property will generate a profit that covers the rental shortfall.

Negative gearing is a complex process and we suggest you weigh up the pros and cons with your accountant before making a decision.

Nilesh Vasoya

Nilesh Vasoya

Nilesh Vasoya is a CPA and experienced business advisor with 15+ years’ experience in accounting and tax, and certifications from NTAA, ICAI (India). He is also a Registered Tax and ASIC Agent. Nilesh specialises in financial reports, cash flow, taxation advice, internal audit, account reconciliation, and advice for small businesses on maximising XERO, MYOB, and QUICKBOOKS. He is experienced in developing strategies for growth within small-medium scale companies.

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