Newbie Tax Deductions Question

[polishka]

Hello everyone,

Very new to the IP area, but I need some clarification on a couple of things (they are likely to sound quite silly)...

I am in the process of looking for my first IP and am reading a lot about the tax deductions that can be claimed against IP expenses. What I do not understand is how the deductions are calculated and in particular what they are based on.

As a simple example, I looked at 3 bedroom townhouse today for sale around the $300k mark that has body corporate fees of around $2000 p.a and council rates of around $1600 p.a. From my understanding, these are both claimable as expenses, but I would like to find out how much I will be reimbursed at tax time for them? Is this a simple calculation or does it depend on many other variables?


Also, I can't seem to find straight answer in relation to how long someone needs to make a property their PPOR in order to be exempt from paying CGT if the property is sold within 6 years? I believe this scenario is accurate???
Thanks for any help in advance..

 

[Rickardo]

The value of the deductions will depend on your total taxable income for that year as their benefit varies depending on your marginal tax rate.

You need to add all your income up (salary, rents, dividends, etc) then minus all your expenses (including deductible property expenses). If your property is negatively geared (expenses are greater than rental income) then a portion of that yearly loss is subsidised because you can claim this loss against your other income (such as salary) and therefore lower your overall tax payable for the year. Check out an example of how negative gearing works here

As for the PPOR exemption, their is no set amount of time you need to live in a property before moving out and it still being able to be CGT free for up to 6 years. Some would say 6-12 months as a rule of thumb but the ATO has accepted less than 3 months, have a read of ID 2006/189. It all depends on what your genuine intent was and your particular circumstances.