Owning an investment property impacts your taxes in two ways.
Firstly, you’re likely to be renting the property out to a tenant. This creates extra income in the name of the property owner, whether this is you as an individual, a company, a trust, or even your SMSF. However, as you’re earning income, this means that you’ll then pay tax on this income.
However, won’t always be the case. If the costs of holding the property—so the interest charges, property maintenance, upkeep, etc—is more than the rental income received, then your property is making an income loss each year. This is called negative gearing, and these losses can offset other taxable income and actually reduce your taxable income at the end of the financial year.
The second impact on taxes is when you dispose of the property. If you sell the investment property for more than you purchased it for, then you may need to pay additional tax in the form of Capital Gains Tax. If you sell the property for less than you purchased it for, you’ve made a capital loss, which you may be able to carry forward to offset any future capital gains.
Check out our article for more in-depth tax advice for your investment property.