How is a Rental Property Negatively Geared?

  • The rental property needs to be purchased with the assistance of borrowed funds, and
  • The net rental income, after deducting other expenses, needs to be less than the interest on borrowings.

The overall outcome from a taxation perspective is that a net rental loss arises.

What Can Happen With the Loss?

Under these circumstances it may be possible to claim a deduction for the full amount of rental expenses against rental and other income (such as wages or business income) for the relevant income year. Should the situation arise where the other income is not sufficient enough to absorb the loss, then the loss is carried forward and into the next tax year.

Tax Refund Situation

With a negatively geared property, where the rental expenses claimed in the tax return would produce a tax refund then it is possible to reduce the rate of withholding to more closely match the year-end tax liability.

An application may be made to the Australian Taxation Office to vary the rate of withholding.

Advanced Strategies and Issues

Legal and tax effective structuring reaps important benefits. There is a lot more to rental properties than purely pursuing valid deductions. Success Tax Professionals act proactively to examine both income and deductions and provide advice about how tax effectively the catalyst for the various deductions have been structured in the first place. For example minimising or removing traps with financing arrangements to facilitate being able to maximise interest deductions.

Some important advanced factors include:

  • Structuring a rental property loan to maximise a landlord’s interest deductions.
  • GST issues arising in relations to residential and commercial rental properties.
  • Determining whether a landlord is carrying on a business for tax purposes.