Hi All,
I am hoping to get a better understand of how tax works on positively geared property. So much is written about the tax benefits of owning a negatively geared property but as Steve says many times in his books, I would rather be receiving positive cash flow!I do understand how negative geared property brings down total earnings whilst positive increases it but are positively geared properties given the same depreciation as negative property?
I have 2 quick examples. What if i find a property that after all outgoings gives me a positive cashflow of $10 per week for an annual positive of $520. Am i then entitled to depreciation which would mean the annual cashflow in essence actually becomes greater?
Second example is what if i find a neutrally geared property that after all outgoings i end the year with a cashflow of say negative $200. Am i then able to claim depreciation which would in turn actually mean the property ends the year on a positive cash flow?
Sorry if i am all over the place here just curious to try and understand this a bit better.
are positively geared properties given the same depreciation as negative property?
Yes.
You are entitled to a tax refund if your taxable income is negative (taxable loss). The amount of the refund is a fraction (tax rate) of the taxable loss.
Try to understand how to calculate your taxable income.
Income – deductions = taxable income
Deductions = interest, depreciation, deductible expenses, etc
If your taxable income is negative then you’re entitled to a tax refund. Don’t think about your cash flow when you do these calculations.
Tax refund = taxable income(if negative) * tax rate
Note: you will only get the refund if you have paid tax from other income. If not it will be carried over to next year.
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auThanks again super!
If possible could you just run through an example for me how this works?Hey Ben
I wrote this blog article about positive/negative gearing a while ago. Hopefully it helps.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hey Jamie,
Thanks for sending that through. You have written that article extremely well and very easy to understand.
I guess the thing I am still having trouble with though is can you claim any tax benefits when your property is positively geared?Take your positively geared example from your blog:
Total investment property costs $2,000
Total investment property income $2500
Total income per month= $500This amounts to an additional $500 per month to John’s taxable income or $6,000 per annum. This means that John’s new taxable income is $56,000 – meaning he will have to pay tax on the additional $6,000 that his investment property has earned.
But what happens if John purchases a new split system that costs him $2000 for his IP? He would still have earnt $4000 that year on the IP but can he claim the split system as a depreciation? And if so how does that work?
Hey Ben
Just a quick tip. There two different different calculation:
1. Income(cash flow) = (Revenue – Expenses)
2. Taxable income = (Revenue – Deductions)eg. Depreciation is a deduction but it’s not an expense.
I think this is what is confusing you maybe.
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.au<div class=”d4p-bbt-quote-title”>Ben wrote:</div>
are positively geared properties given the same depreciation as negative property?Yes.
You are entitled to a tax refund if your taxable income is negative (taxable loss). The amount of the refund is a fraction (tax rate) of the taxable loss.
Try to understand how to calculate your taxable income.
Income – deductions = taxable income
Deductions = interest, depreciation, deductible expenses, etcIf your taxable income is negative then you’re entitled to a tax refund. Don’t think about your cash flow when you do these calculations.
Tax refund = taxable income(if negative) * tax rate
Note: you will only get the refund if you have paid tax from other income. If not it will be carried over to next year.
Hang on, didn’t our beloved Kevin 07 change the rules and declare that we must now be taxed on all income prior to expenses/deductions?
Hi Bonham
Not sure where you read that but that is not correct.
Your taxable income is based on your adjusted income after deduction of both cash and non cash deductions.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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