Offset Accounts | Axon Property Group Skip to content

Property Investment Finance Video 8

8. How Properties Reduce Tax

When you own a property it is important to understand the two form of incomes you get from it. In this short video, Robbie explains these incomes and how they work to reduce your tax.

or if you missed video 1 - click here

Transcription:

Did you know when you earn on investment property you get two forms of income? You have the rent return and the tax return. It's vitally important you understand how properties reduce tax. Watch this little two minute video and now I'm going to show exactly how it works. If you have a $500,000 property and a very generous $500 a week of rental income, that's $26,000 a year. If you earn $100,000 a year and then you have that extra $26,000 a year, you've got a total taxable income of $126,000 a year.

Now, all of the expenses for this property are fully claimable against your total income. Let me now show you how it works. The loan interest, $22,500 a year. You've got your rates, you've got your maintenance, you've got your insurance, you've got your rental management. Basically all of your cash deductions. Every time that there is a deduction for a property, you can claim it against your taxable income. Money has to leave your bank account for you to be able to claim that back. Spend a dollar to be able to claim 35 cents.

Now, there's this wonderful thing called depreciation. Remember, brand new properties are dripping wet in depreciation. Up to $15,000 in the first full tax year. No money needs to leave your bank account for you to be able to also drive down exactly what your total deductions are going to be. When you total those together, there's $42,500 worth of deductions. You had $126,000 a year as your total taxable income minus $42,000, you can see now there's only $83,000 difference.

You've already paid tax on $100,000. You should have only paid tax on $83,000. There's a $16,000 difference. And then when you basically put in there what your nominal tax rate is, you can see that's you get about $6,500 back in your tax. Two forms of income, rent return, tax return. Understand how they all work, you get a much better result.

Disclaimer:

Tax laws, interest rates, stamp duties and other considerations are constantly changing and the accuracy of the information contained on our website, social media sites or in any presentation is only current as at the date of its delivery.
This information and any examples provided do not constitute financial, legal or tax advice. We have not analysed or reviewed your personal circumstances. Where appropriate, you may need to obtain financial, legal, accounting or tax planning advice from a professional before implementing any wealth-creation strategy based on investing in property.

Axon Property Group, nor its respective directors, servants, employees or agents will be liable to you for damages, direct or indirect, including any loss of profits, loss of savings or return on investments or any other incidental consequential damages arising out of or connecting with the utilisation of or inability to utilise the financial and property concepts illustrated in this presentation.

None of the parties specified accept any responsibility or assume any liability for any accounting or investment decisions that you may make based on this presentation or in respect to any claim made by any other party.

You acknowledge and accept that the entire risk of making an investment in property, and the results and performance of any such investments, are your responsibility and no liability attaches to Axon Property Group. This disclaimer is to the extent permitted by law.