Real Estate Investments

You can negatively gear real estate. In most cases the interest together with the rates, insurance, repairs, depreciation and capital allowances on the construction costs of the building exceed the income earning capacity of the property.

The resulting tax loss can be claimed against other income. Often the tax savings of the negative gearing operation go a long way to providing the funds necessary to meet the net cash outflow.

If you own an income-producing unit in a building, your body corporate fees are a direct deduction. You can also claim depreciation for your proportionate share of the costs of commonly owned plant and equipment.

In high rise buildings the cost of such plant and equipment represents a very high proportion of the total costs. All multi-unit buildings, including single storey and walk up buildings, will have some plant which is commonly owned.

It is possible to obtain values of your pro rata share of this plant. Sometimes this can be supplied by the agents from whom you purchased the unit, or from the body corporate. In other cases you may have to go to a quantity surveyor.

This could happen in the early stages of a long term investment when the interest portion of the repayments is high. Future earnings from the property (either income or capital gains) will eventually offset the losses.

This must be the intention or the ATO will consider that the expenses are only deductible to the extent of the interest paid.

Negative gearing is a method of acquiring income-producing assets - a forced savings plan. It is easier to find the discipline to repay a loan than it is to save every week. Tax deductions for the interest incurred can help offset the cost.