Tax Implications of Rentvesting in Australia (2024–25)
Rentvesting—renting out your apartment as an investment while living elsewhere—provides attractive tax benefits alongside specific obligations. Below is an overview of how this strategy affects your taxes for the 2024–25 financial year.
1. Rental Income Is Taxable
Every dollar of rental income must be reported on your tax return and taxed according to your marginal rate.
Example: Earning $1,030 per week results in an annual rental income of roughly $53,560. With a salary of $80,000, your total taxable income (before deductions) becomes $133,560.
2. Claiming a Wide Range of Deductions
As a rentvestor, many ongoing costs can be deducted from your taxable income. These typically include:
- Loan interest
- Property management fees
- Council and water rates
- Body corporate fees
- Landlord, building, and contents insurance
- Maintenance and repairs
- Depreciation (capital works and eligible new assets)
- Advertising for tenants
- Cleaning, gardening, and pest control
- Land tax (if applicable)
These deductions reduce your net taxable rental income, and if expenses exceed income, negative gearing can be applied.
3. The Benefits of Negative Gearing
When your property expenses surpass the rental income, the resulting loss can be used to offset your salary, lowering your overall tax liability.
Example:
Rental income: $53,560
Rental expenses: $55,000
Loss: $1,440
Adjusted taxable income: $80,000 – $1,440 = $78,560
4. Capital Gains Tax (CGT) on Sale
When you sell the apartment, any profit made after it became an investment property is subject to CGT:
- If the property is held for more than 12 months, a 50% CGT discount applies.
- If you previously lived in the property, you might be entitled to a partial exemption (e.g., under the six-year rule).
5. A Practical Tax Example (2024–25)
Consider this scenario:
Salary: $80,000
Rental income: $53,560
Deductible expenses: $50,333
Net rental profit: $3,227
Total taxable income: $80,000 + $3,227 = $83,227
Instead of paying tax on a combined $133,560, your taxable income is reduced to $83,227 thanks to available deductions.
6. Annual Expense Breakdown
| Expense Type | Annual Amount | Deductible? |
|---|---|---|
| Loan Interest | $31,252 | Yes |
| Water | $1,820 | Yes |
| Council Rates | $2,050 | Yes |
| Electricity | $2,379 | Yes |
| Body Corporate | $7,832 | Yes |
| Depreciation (2006 Apt) | $5,000* | Yes |
| Total | $50,333 | Fully Deductible |
*Depreciation is calculated at 2.5% per year on capital works under Division 43.
Key Takeaways
- All income from your rented apartment is taxable.
- A range of property-related expenses can be deducted to lower your taxable income.
- Negative gearing helps reduce your total taxable income when expenses exceed rental income.
- Capital Gains Tax is payable on sale, although exemptions or discounts (such as the 50% discount) may apply.
- A property built in 2006 is eligible for capital works depreciation until 2046.
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