Topic 6 - Property and negative gearing

Question 1

Rental expenses that can be claimed immediately – source: www.ATO.gov.au

• ____________ and _______, __________ and ________for tenants
• Land tax and interest paid on a mortgage and other loans to ______ or _____the property
• ________ expenses including mortgage insurance
• $100 or less – immediate deduction
• more than $100 – expensed over 5 years or the term of a loan if the term of the loan is less than 5 years
• Council rates and water charges
• the landlord pays for water usage when one meter is ______ for a number of properties
• Depreciation
• Other expenditures such as _______ and ________

Answer 1

Rental expenses that can be claimed immediately – source: www.ATO.gov.au

• Body corporate fees and insurance, real estate agent fees and advertising for tenants
• Land tax and interest paid on a mortgage and other loans to buy or improve the property
• Borrowing expenses including mortgage insurance
• $100 or less – immediate deduction
• more than $100 – expensed over 5 years or the term of a loan if the term of the loan is less than 5 years
• Council rates and water charges
• the landlord pays for water usage when one meter is used for a number of properties
• Depreciation
• Other expenditures such as repairs and maintenance

Question 2

Depreciation on furniture and fittings – rental property

• Depreciation is allowed on the cost of:
• ______, ______and other ________
• _____and _________e.g. ________
• __________
• _______, ________ and etc.
• Depreciation is not allowed on __________, ______or any _________ permanently fitted

Answer 2

Depreciation on furniture and fittings – rental property

• Depreciation is allowed on the cost of:
• ovens, dryers and other whitegoods
• heating and cooling e.g. hot water system
• carpeting
• curtains, blinds and etc.
• Depreciation is not allowed on built-in cupboards, tiles or any fixtures permanently fitted

Question 3

Capital works deduction

• Deduction is allowed for:
• the ________ construction costs, not the purchase price
• the cost of ________ a building (e.g. bathroom makeovers)
• the cost of capital _________ to the surrounding property (e.g. constructing a garage, sealing a driveway)
• A rate of 2.5% over 40 years (straight line) _______ to residential properties built after 1987 from the year the construction was completed
• Capital works deduction reduces the cost base of an asset

Answer 3

Capital works deduction

• Deduction is allowed for:
• the building construction costs, not the purchase price
• the cost of altering a building (e.g. bathroom makeovers)
• the cost of capital improvements to the surrounding property (e.g. constructing a garage, sealing a driveway)
• A rate of 2.5% over 40 years (straight line) applies to residential properties built after 1987 from the year the construction was completed
• Capital works deduction reduces the cost base of an asset

Question 4

Deduction for repairs

• Deduction for repairs is allowed as long as the money was spent to _____ the property in the state it was in when it was purchased
• Deduction is not allowed when the money was spent to _______ the value of a property, for example:
• the cost of _______ new kitchen cupboards or bathroom fittings - this is capital expenditure and will be ______ to the capital base of the property
• Deduction is not allowed when repairs were ____________ before the property is _______for the first time
• Deduction is allowed if repairs were _______after the old tenants _________ and new _________ providing the landlord looks for new tenants

Answer 4

Deduction for repairs

• Deduction for repairs is allowed as long as the money was spent to keep the property in the state it was in when it was purchased
• Deduction is not allowed when the money was spent to increase the value of a property, for example:
• the cost of installing new kitchen cupboards or bathroom fittings - this is capital expenditure and will be added to the capital base of the property
• Deduction is not allowed when repairs were carried out before the property is rented for the first time
• Deduction is allowed if repairs were carried out after the old tenants move out and new move in providing the landlord looks for new tenants

Question 5

Negative gearing

• Negative gearing is an investment strategy where an investor buys an asset using borrowed money and the expenses of ___________the asset such as interest payments on a mortgage are higher than the income derived from that asset resulting in a loss
• In Australia, investors are allowed to _______losses from passive investments against other incomes resulting in the reductions of the overall tax debt

Please note: to be able to ______ a deduction for the interest charged on a loan, the loan must be used to _______ an investment asset, and the asset must __________ assessable income e.g. rental income from an investment property

Answer 5

Negative gearing

• Negative gearing is an investment strategy where an investor buys an asset using borrowed money and the expenses of maintaining the asset such as interest payments on a mortgage are higher than the income derived from that asset resulting in a loss
• In Australia, investors are allowed to offset losses from passive investments against other incomes resulting in the reductions of the overall tax debt

Please note: to be able to claim a deduction for the interest charged on a loan, the loan must be used to purchase an investment asset, and the asset must produce assessable income e.g. rental income from an investment property