As an investment property owner of around 25 years, I’ve been hit
with just about every property tax and expense that you can think of.
Hot water systems suddenly stop working.
Air-conditioning units and dishwashers that no longer turn on.
I once received a sky-high water bill that prompted me to do some
digging - it revealed a deep, buried water leak that cost several thousand
dollars to locate and repair.
The bottom line is that owning an investment property can see you paying
a number of unforeseen bills each month.
But, while this might be true, if you buy the right type of quality
property in the right location, it can also help you grow your wealth.
And as an added incentive, the expenses involved in owning an investment
property help you pay less tax.
Specificity of income tax on investment property
The majority of the costs associated with owning a rental property can
be deducted against your regular income tax bill, which reduces the amount of
tax you pay overall.
For example,
Let’s say you earn $80,000 a year and in total, you spend $25,000
paying for your investment property, but you receive $20,000 in rental income.
The $5,000 difference between the
money you receive in rental income ($20,000) and the money you spend paying for
the property ($25,000) is tax-deductible.
That’s $5,000 worth of expenses you can claim against your regular income tax.
That means that the Australian Taxation Office (ATO) would
assess your tax as if you’d earned $75,000 instead of $80,000.
So, every week or fortnight, or month,
you’ll pay tax as if you earn $80,000, but then when it’s time to file your tax
return, you’ll get a refund of any tax paid on the $5,000 difference.
According to current tax rates, that’s
around $1,625 back in your pocket.
Not only that, but you can also usually make a claim each year for
depreciation, which is an allowance for the wear and tear of the property over
time.
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Jason Gwerder
Wednesday, 22 June 2022
