income tax gain of investment property

Hi All,
I am thinking of buying my first investment property and I would like to make sure I do understand tax saving benefit and negative gearing correctly.

I would like to present a sample scenario for the first year (negative gearing and claiming interest expenses).

Gross Income: $100,000
Income tax: $24,950 (approx. 25'000)

IP Price: $333,000
Initial pay: %10
Loan amount: $300,000
Comparison rate: %7
Mortgage: 30 year
First year:
Monthly payment $1996
Principal paid (yearly) : $3047
Interest paid (yearly) : $20903
Total paid (yearly) : $23950

Rental cash flow:
Weekly rent: $350 (yearly $18,200)

Yearly rates, renovation, insurance: $5,000

Yearly net cash flow: $18,200- $5,000 = $13200

For the first year: $13200 - $3047 (principle) = $10,153 (Interest paid by tenant)

Rest of the interest paid by IP owner: $10,750

Adjusted income for tax purposes: $100,000 - $10,750 - $10,153 = $79,097

Income tax on $78,297 = $17,280

Total tax back: $24,950 - $17,280 = $7,670

I appreciate your comments/opinions.

Just double check your numbers, I like to do it like this


Wage $100k
Rent $ 18k
TOTAL $118k

Rates/Insurance etc $ 5,000
Interest ($333kx7%) $26,000
TOTAL $31k

Taxble Income for tax purposes = $118k - $31k = $87k

Depending on the property, you may be able to claim depreciation as an expense, lowring your income a bit further for tax purposes and therefore increasing your tax return as well (in case you didn't know about this)
For an investment property you should not pay back the principal as this increases your tax paid. Interest-only loan with offset account attached is the best.
Hi Ali


Sit with a decent banker or independent mortgage broker to see how Interest only and borrowing the deposit and costs can be of great benefit to you ( assuming you have an owner occ property with some equity)

You should be aware you should not claim renovation costs as a tax deduction.


Why not?

If the renovation is a repair it could be claimed in full in some instances. If it is an improvement and not a repair then the costs can be depreciated overa number of years in most cases.

The OP deducted $5,000 rates & reno from his income.

I agree that reno expenses may be depreciated and claimed over the useful life of the asset. I was just pointing out that you should not deduct a largish amount for renos (repairs are a different matter) in the one year.

Hi Syd,

Yes, i agree.

Ali, reno costs may not be claimable all up front. Repairs could be claimed, possibly, but renov costs such as a new kitchen etc may need to be depreciated over a number of years.