Basic question on deductable interest

Hello

I'm relatively new to Australia (from UK) and am confused as to whether all interest on a loan for an investment property is tax deductable from my personal tax bracket, or whether this only applies if the interest (and other costs of investing) exceed the rental return?

Or to put it briefly - can I claim a tax deduction for the interest repayments for a positively geared IP?

Thanks for your help!!

Hi Monster

Good to have a fellow Pom on the forum as sometimes i get out numbered by the locals.

To answer your question yes all of the interest payable under an investment loan is deductible against your income however do remember that all of the rent earned is also added to the same income.

In the case of the property being positively geared then you will be taxed at your marginal tax rate on the surplus.

It is for this reason that structuring your loan correctly and ensuring that you use the correct entity to buy the property i.e Discretionary Family Trust is worth considering.

An initial mistake can cost you $000 in year to come.

Cheers

Yours in Finance
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
www.tayloredfinancialsolutions.com.au
richard@tayloredfinancialsolutions.com.au.
Lodoc loans from 8.63%

Hi Richard

Thanks for the advice. I must say I'm  quite surprised - was pretty sure the UK inland revenue didn't allow this and thought it was only for negatively geared losses over here!

So, for example, if I wanted to buy a $200K property with a 5% deposit and have a mortgage (sorry, home loan) of $190K  at 10% (for ease of calculation),  the interest of $19Kpa would be deductable from my 45% tax rate leaving me with $10450 to pay? (The rental return then being added back to my income and taxed accordingly).

Would the deposit also be tax deductable if I take it from my PPOR offset for the specific purpose of investing?

Cheers

MM

MM, you need to add the rent received on to your personal exertion income, deduct the interest paid and other deductions, then pay tax on what is left .

Tools

MM

Yes the interest on the deposit and all acqusition costs would be deductible if the funds had been borrowed however the trick is to ensure that you keep the loan totally separate to your PPOR borrowing.

In addition non cash expenditure such as Depreciation and Building Write off depending on the age of the property is also deductible. Good isnt it.......

Cheers

Yours in Finance
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
www.tayloredfinancialsolutions.com.au
richard@tayloredfinancialsolutions.com.au.
Lodoc loans from 8.63%

the whole crux is that when you fill out the tax form it will be asked for a net rental loss or a net rental profit.
So net rental profit/ loss = rental income - expenses (interest, council rates, repairs, water rates, insurance, borrowing costs over 5 years, depreciation,ect )

So if you end up with a net rental loss it is subtracted from your gross taxable income on your tax return. If you make a profit it is added to your gross taxable income.

You could ring the ATO to confirm this as they are always very helpful in helping to explain taxation to taxpayers
or check out this article on their web site
http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm
or
check out this search page results
http://www.ato.gov.au/SearchResults.asp?si=001%2F002&kw=rental+expense&go.x=0&go.y=0&go=1

http://www.ato.gov.au/individuals/content.asp?doc=/content/00096828.htm
downloadable guide

Comments are of a general nature and may not be relevant to your individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.