Many people invest in real estate and take advantage of the tax deductions. Unlike your own home that you live in, the interest on residential investment loans can be deducted against the rental income. All other expenses including depreciation can also be claimed.
Where you have a situation that all of these expenses exceed the rental income, you have a loss. This is called ‘negative gearing’.
Here’s a little known secret that more investors should take advantage of:
Let’s take, as an example a loss against rental income of $5000 per year. This loss is deducted from your regular taxable income. Assuming a personal tax rate of 37%, this would give you a tax return of $1850 for the year.
You can either wait until you do your tax return to get this back as a lump sum or you can apply to the Tax Office for a variation an have this refund returned each payday by having your PAYG tax reduced by this amount.
There is an application form to be filled out to vary your tax rate. Once approved, the ATO will send you a letter to give your paymaster to make the appropriate reduction.
This is a great idea if you are on a salary. Why wait a year to get your own money back?