Question on tax and cash flow positive property

Hi and welcome aboard

All the holding costs and expenses associated with the property will be deductible – that includes the interest on the loan, property management fees, maintenance costs, insurances, borrowing costs, depreciation, etc.

Don't jeopardise capital gain in return for a small positive cashflow though. Without some sort of capital gain – it will be difficult to grow a decent portfolio.

Cheers

Jamie

Hi Sabbathen,

The ATO have published a rental property document with some information regarding your question. I have attached the link below.

http://www.ato.gov.au/content/downloads/ind00313554n17290612.pdf

Patty 

Jamie M wrote:

Hi and welcome aboard

All the holding costs and expenses associated with the property will be deductible – that includes the interest on the loan, property management fees, maintenance costs, insurances, borrowing costs, depreciation, etc.

My Question:

Do the tax deductions apply when the property is set up through a trust structure?

Where can I find information about what can/cannot be claimed through a trust structure?

When we do cashflow analysis we take into consideration the following:

1. Strata (if its a unit)

2. Building Insurance (if its a house)

3. Interest payable on the loan including annualised fees 

4. Property Management Fees

5. Water Rates (if its a unit)

6. Council Rates

We don't take into consideration:

1. Drop or increase in interest rates

2. Depreciation

3. Negative gearing

4. Vacancy periods

5. General Maintenance/Repairs

We also take into consideration the whole purchase price (minus any grants) when calculating the loan repayments instead of just the loan itself.

Regards

Shahin

Are you using another loan to cover the the purchase/deposit? If so, you should base the repayments on 100% plus costs. 

As mentioned above, depreciation is a huge deduction that should be taken advantage of.

Cheers

Jamie

When I analyse a property, I look at :

Property Management fees

Water bills

Council rates

Insurance

Gardener

Strata fees (if applicable)

Annual maintenance allowance

Annual vacancy allowance

Mortgage interest and fees

Depreciation allowances

Negative gearing if applicable

If purchasing inside a SMSF I also factor in:

Annual accounting and ASIC fees

Death & TPD insurance covering SMSF members

Member contributions

I factor in annual price hikes for each of the bills, as well as rent hikes, as well as factor in the offset account balance – so I can see when a property will be paid off (ie when the balance in the offset account is equivalent to the original loan amount, and therefore the interest payable becomes zero)

I also take a look at the whole portfolio as an aggregate (all totalled up together) to understand what the overall picture looks like (eg one property might be cashflow positive but becomes neutral if it is supporting) and factor in tax payable.  All that allows me to see precisely how much more property a person would need to acquire to eventually be able to live off the rent surpluses, and  when that magical day will arrive.

Hi,

I want to give you some examples from our company's financial department, so you can have an overall picture on what to expect in terms of expenses and incomes.

Project: Sunset Dreams – Rosebery suburb (Palmerston)

Median price $429,000

Median weekly rental $490

Body corporate costs per week $63

Tax savings $9,000 per year

Project: Evolution on Gardiner (Darwin CBD)

Prices from $955,000

Cash flow projection:

1. Cash Inflow

– Apartment Rent: $67,165

– Tax Refund: $8,834

2. Cash Outflow

– Body corporate: $6050

– Insurance: $270

– Interest – Loan: $52,197

– Management Fees: $4,702

– Rates & Taxes: $1,070

– Repairs & Maintenance: $1,500

NET INCOME: $10,211

Regarding depreciations and tax savings, for maximum benefits you should definitely consult a professional. We work with Rider Levett Bucknall, they provide excellent capital allowance reports.

Cheers,

Emil

http://www.sunbuildinvest.com.au