Defining tax positions on a property

Question from scott updated on 8th August 2007:

Does a property have to be positive pre-tax to be deemed a positive cashflow property, or can it also be called a postive cashflow property if it negative pre-tax and positive after tax?

Our expert responded:

There are two kinds of tax positions on a property - pre-tax and after tax. A positive cashflow property is a property that will be positively geared pre-tax, that is, enough rent coming in to cover all of its cash expenses such as the mortgage, rates and insurance. It will also be positively geared after tax - you've not had to put any money into the property at all. If it is negatively geared pre-tax, then that means that the rent coming in does not cover all of the cash expenses, in other words, there is a cash shortage. If it is positively geared after tax, that means that while you may have been putting some money in tsp all of the cash expenses can be paid, when you then add in the depreciation effect, your tax refund reimburses you for the amount of your cash top-ups plus some more. Negatively geared after tax will mean that even after you get your tax refund, you're still out of pocket because you've put more money into the property than what you've gotten back in your tax refund.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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