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Getting into gear in the new financial year

I have been advised that I should become a landlord and buy a property to rent out, as I don’t have the cash to buy the house I really want to live in. Someone told me the taxman helps landlords with tax deductions. This means I might be able to buy the property I really want. Could you explain how the tax system helps people like me?

What your friend is talking about is negative gearing. Gearing means to be in debt and if the income or rent from the property you borrow to buy is less than the interest repayments and other costs being a landlord, such as real estate agent fees and repairs, then you have a negative result. You then are relying on negative gearing to reduce your overall tax bill.

Let’s just say you ‘lose’ $6000 on the rented property for the year. You can take this $6000 and deduct it from your income from your job, which will mean you will have a lower tax bill. Your taxable income is now $6000 smaller. This will bump up your tax refund and, if you want, you can fill in a form and give it to your paymaster who can adjust your weekly pay so you pay less tax each week, which will help you make your home loan repayments easier.

The idea is a good one if you can easily make your payments and if your property is in a good area where it will grow in value – capital gain – and that’s another way the taxman helps you become wealthier.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, July 15, 2010

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