How Much Tax Can I Save?

Negative Gearing Explained!

The ability to borrow against an investment for its purchase has two advantages;

1. The costs incurred are tax deductible (that is the real cost of the borrowing is reduced); and
2. The investor receives 100% of return but is only required to pay for a small percentage of the investment:

This page explains how negative gearing works by using a brand new residential investment property (similar to those we recommend) as an example. 

Negative gearing refers to the tax deduction you, as an investor, receive when the total costs of owning an investment property and your full depreciation allowance are more than the rent received (note that the capital growth of your investment property is not assessed for calculating your tax deduction). 

This means that while your investment property is negatively geared for tax purposes (costing you money each week) you can make a substantial investment profit ($350,000 in 7 to 10 years) from the long term capital growth if you invest in a quality investment property like those we recommend to our clients.

To work out how much tax you would save (get back from the Tax Office) if you owned a brand new investment property recommended by Phoenix Property Consultants just;

 

For Example -

You have borrowed $365,000 to purchase a $350,000 investment property and you pay all the additional up-front-costs (stamp duty, solicitors etc) from these borrowings.  The property will rent for $350 per week and you pay all the usual on-going-costs (interest, rates, property management insurance etc).  So just fill in the blanks to see how much Tax you could be saving:

A:  Your current Taxable Income is                (your gross salary or wage before tax is)               A = $ ______________

B:  Add your Rent of $18,000 ($350/wk)    your new Total Earnings are (old Taxable Income + rent)                B = A + $18,000                 B = $ ______________

C:  Calculate Tax Deductions:     Expenses your Loan Interest @ 8.5%              $31,000 Rates                                             $1,600 Building Insurance                              $300 Landlord Insurance                             $250 Property Management @ 8%+           $1,600 Pest Spray                                         $160 Termite inspection                              $120 Bank & Other Charges                         $270 Visit to Property                                  $300          Subtotal                                                     $35,600     Depreciation Building Depreciation @ 2.5%            $5,100 Fittings (variable)                            $3,865           Subtotal                                                      $8,965     Total TAX Deductions    C  =                         $44,500

D:  Your New Taxable Income is?             (new Total Earnings less Tax Deductions)                 D = B - $44,500                 D = $ ______________

E:  You do NOT PAY TAX         on the difference between current & new Income                       E = A - D                 E = $ ______________

F:  Your Tax Saving will be    (the tax previously paid on amount E that is now tax free)        F = E x  Your Marginal Tax Rate**       Tax Saved = $ ______________

** Marginal Tax Rates are listed on our Current Income Tax Rates page.

 

* DISCLAIMER: This example may not be applicable to your circumstances. Please consult Phoenix Property Consultants (or other experienced Financial Planner) to assess if this process is applicable to your financial circumstances.  

 

Call 1300 007 009 to see how much tax you can save with the help of Phoenix Property Consultants!

 

Download your own PDF Worksheet of "How Much Tax Will I Save?" (right click and select 'save target as')