Holding an investment property has costs including taxes. This clip gives you some insight around how taxes are calculated on older properties held as an investment(non exempt – ie not new or considered new build). Tax laws can change so its a good idea to contact a decent accountant to ensure you get the most detailed idea of your own situation.
Taxes on the annual profit?
With most businesses you pay tax on the profit you make. However with an investment property, changes have meant this is not the case. Apart from exempt properties (considered new build or phased out exemptions for existing investments), annual tax is calculated on profit before interest costs.
So for most existing properties this would mean tax is payable on the rent after taking out rates, insurance and maintenance.
Example:
$25k Rent – income
$2k Rates
$1k Maintenance
$1k Insurance
$21k taxable income
The tax on the taxable income will be based on your personal tax rate for that year.
New vs Old
With those properties considered new(built after a certain date), this tax is calculated after paying the interest cost of any associated mortgage. So a new property can look better in terms of cashflow. Plus the maintenance costs will be minimal for many years.
However generally new builds will cost more, so a larger interest or loan servicing cost might exist. Also some would argue that buying old can still mean a larger land size for the same money. Which can mean better property price inflation or future potential to subdivide.
