Rental Taxable income question

[PuglyMember@puglyJoin Date: 2009Post Count: 10]

April 7, 2011 - 5:52 am

Hi, just a couple of quick questions, I do plan to see an accountant but just wanted to get some general feedback before I do on a couple of issues.

 Do you get charged tax on your normal income and with the income you get from your rental property, or is the income you receive only added if it is positively geared.

For example if your rent is $70 000 a year, repayments are $30 000 as well as the normal added costs such as management fees, insurance etc which total up to say $3000.

So do you add up your personal income say $90 000 + $70 000 to calculate your taxable income or do you take those other costs out before calculating your total income.

My apologies if this has been covered in previous forums but I did search and was unable to find a definete answer.

Cheers

[Mr5o1Participant@mr5o1Join Date: 2010Post Count: 107]

April 7, 2011 - 6:21 am

It's something like:
Taxable Income = Other Income + (Rent – Costs)

So for you its:
Taxable Income = 90 + (70 – 33) = 127

for a negative geared property it might be:
Taxable Income = 90 + (15 – 25) = 80

Once you work out your taxable income, then apply marginal rates.

[PuglyMember@puglyJoin Date: 2009Post Count: 10]

April 7, 2011 - 7:32 am

Gotcha, thanks very much, just to clarify even furthur, you take all costs away from your taxable income, then you are still able to claim a % of your other costs on top of that such as management fees, gardening etc.back at tax time

[Mr5o1Participant@mr5o1Join Date: 2010Post Count: 107]

April 7, 2011 - 8:07 am

Well not quite, you only claim the costs once, and you claim all the rental costs against your rental income.

Where the costs are greater than the income, the result will be a loss.

Regardless of whether the rental turns a profit or a loss, the outcome is applied to your other income.

In the example of:
Taxable Income = 90 + (70 – 33) = 127

The rental is turning a profit of $37k after the expenses of $33k have been deducted from the income. So in that example, it will increase your income by $37k to arrive at $127k.

It might help to try to think of the rental as a seperate entity or business (even though it's not). The rental has income and it has expenses, from which it will turn a profit or a loss. Then, if the rental turns a profit, then that profit will increase your taxable income, and vice versa.

Clear as mud?

[PuglyMember@puglyJoin Date: 2009Post Count: 10]

April 8, 2011 - 6:51 am

Cheers, thanks for your help and time