Australian Real Estate Investment and Tax Savings (Negative Gearing)

Australian Real Estate Investment and Tax Savings (Negative Gearing)

I think that many Japanese people are worried about investing in stocks and investment trusts, but there are also those who are willing to invest in real estate. Sydney real estate prices continue to rise even though they are said to be the same as the bubble in Japan. It’s undeniably calm this year, but it’s one of the attractive investment choices because of its historic low interest rates and tax savings, as well as expectations of long-term capital gains.

If the taxable income of real estate investment is positive, it is called positive gearing, if it is negative, it is called negative gearing, and if it is plus or minus 0, it is called neutral gearing. Negative gearing is one of the causes of the tax-saving effect that is generally said. Simply put, income tax can be reduced by reducing the taxable income of individuals by the negative amount of real estate investment.


The main expenses that can be deducted in real estate investment are as follows.

  • Interest expense
  • Borrowing costs
  • Strata (administrative fee)
  • Council
  • water bill
  • Repair costs (repairs within one year of purchase are considered capital and cannot be deducted)
  • Agency costs to a real estate company
  • Land tax
  • Equipment

Of these, depreciation, which is also large in terms of monetary value, is difficult to understand. Simply put, the value of real estate decreases from the time you purchase it, just like a car, so you can deduct the loss without actually paying in cash.

This depreciation is deducted based on the Depreciation Schedule created by a specialist such as BMT. The cost is around $ 700 at the time of creation, but once created it is usually valid for 30 years and this cost is of course tax deductible, and in most cases it can be recovered in the first year due to the amount of tax savings by depreciation.


I will explain using the case of the customer who requested the other day as an example.


This person bought a new townhouse of $ 400,000 in QLD with a down payment of 10% three years ago with an annual income of over $ 100,000. I declared income from this property in tax returns for 2016 and 2017, but I didn’t get a depreciation table due to my busy schedule and lack of explanation from my previous accountant.

We received the request for filing in 2018, and we recommend that you prepare a depreciation supplementary table, and it was sent by e-mail in about a week. Details of this depreciation declaration and amendment are as follows.


Salary only Investment property purchase Investment property purchase
No depreciation With depreciation
Employment income 100,000 100,000 100,000
Rent income 20,000 20,000
Real estate expenses:
Borrowing costs 300 300
Interest expense 12,000 12,000
Management fee 2,000 2,000
water bill 736 736
City hall tax 1,819 1,819
Care of the garden 294 294
insurance 371 371
Real estate management costs 1,655 1,655
Stationery / mailing costs 120 120
Transportation expenses 720 720
banking fee 150 150
Depreciation                               – – 12,000
Total expenses 20,165 32,165
Balance from real estate investment 0 -165 -12,165
Taxable income 100,000 99,835 87,835
Tax payment amount 24,947 24,886 20,446
Medicare tax 2,000 1,997 1,757
Total tax payment 26,947 26,883 22,203

If you did not declare depreciation, you would have lost almost no loss and was in neutral gearing, but after you filed the amendment, you lost $ 12,000 and received an annual refund of $ 4,680.
In the case of this person, the amount of depreciation is large because it is a newly built property, the taxable income is over 100,000 dollars, and the personal income tax rate is high, so it was an investment that benefited from tax saving quite effectively.

We also filed tax returns for 2016 and 2017, and the refund amount from the ATO (Australian Taxation Office) was close to $ 15,000 for three years.

This depreciation is also possible for pre-owned properties as well as new ones, and in most cases you can deduct at least thousands of dollars, even though you don’t have to spend cash on anything other than creation costs.

Negative gearing has other deductible income from salary income, dividend income, interest income, etc., and is effective when tax is paid.

Another reason why I was luckier this time was that the amendment filing approved by the ATO stipulates that the period going back is two years from the date of issuance of the tax payment notice, and that it was just in time from the year 2016 when it was purchased. is.



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