Noob question about commercial investing! Help!

[HandyAndy888]

Hello all,

This may be a really stupid question, but I need help to clarify...

I am intending on purchasing commercial property, with a loan from a bank.

As I am getting the rent, does it count as income and do I have to tax it (it already has GST built in)? So in essence, is investing in a commercial premise the same as a residential IP? If I make more than the interest, do I have to claim it on tax??

Thanks in advance for your answers...

 

[ianvestor]

If you personally are getting the rent, then it's added to your personal income and will be subject to income tax.

And, if you personally are taking out the loan, then the interest on that is tax deductible.

Are you using company/trust at all for the purchase?

 

[HandyAndy888]

Hello Ian,

I think maybe I will set up a business...if I do, what happens with all the rent (assuming it's over the interest of the loan)??? Do I pay tax if its paying off the principal?

 

[Welcome]

Depends how it is set up. If you are running a business as a sole trader then it will be added to you perso tax return. If it is set up as a company you will be taxed at 30% flat rate but any dividends you take out of the company will be taxed at your personal rate.

Hope that helps.

 

[TommyR]

Hi Andy,

Yes it is basically like residential in that you can deduct interest and other costs from the income and pay tax on what's left if anything. The GST doesn't form part of the rent and is remitted to the ATO separately.

Even if you use rental income to pay off the principal you still pay tax on that money, ie you can only deduct the interest payment not the principal repayment. Just as with residential.

Hope this helps

Tom

 

[HandyAndy888]

Thanks Tommy....spot on...

 

[grossreal]

hi HandyAndy888
I would have a look at the structure that you are going to buy the comm in first
yes profit is taxed but you can employ people within the company to reduce that profit. you can also refinance the companies asset to reduce profit increase available cash and invest that cash in other projects.
I would refinance every 5 years and use this available cash flow from the loan to move forward.
make sure that there is a annual increase in the loan this will allow you to budget when to refinace and how much cash flow from that project youwill have.
for me the idea is not the cash flow this part is fine but the available cash from the loans this is relatively cheap money and is easy money to activate and comm is relatively stable.
income in comm or resi is taxed but using a company can be used alot easier