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Deductable Expenses

By Dan Sowden

Australians love property. Owning it is known as The Great Australian Dream – the average Australian has a deep seated belief that real estate is both a form of security and a sign of success. It’s a cultural phenomenon that’s stronger in this country than in most other countries around the world.

Our love of property is especially obvious in the investment realm. Put simply, the concept of owning bricks and mortar is more comfortable to many Australians than shares or other investment vehicles that are perceived as higher risk. But it’s not that there is no risk – much of our property investment is funded by borrowings.  A recent report from Goldman Sachs chief economist Tim Toohey actually showed over a quarter (27%) of Australia’s total debt is from residential investment loans. It’s not a bad thing though – there are good fundamentals supporting the property investment phenomenon.

With the breaks available on property investment, even our tax system is set up to support our faith in property. In fact, Australia has one of the most advantageous tax systems for property investment in the whole of the developed world – only the Netherlands offers more generous tax benefits on property.

And going forward, the trend towards property investment is set to rise this year. The latest Datamonitor report says 8% of Australians plan to buy an investment property in the next twelve months, up from 5% in 2009.

Although it’s an uncommon scenario to find a residential property where the rental income would straightaway cover the interest payable on the loan required to purchase it, the tax benefits available on property investment mean any short-term drain on cash-flow can be minimised. This strategy, where the expenses relating to a property exceed the rental income, is termed negative gearing.

Source: Ray White Channel 5

For more information on property management contact our team at the Maroochydore Office on 07 5443 2000 or follow this link to the property management section of our website.

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