Moving tax impact

Our Experts Answer:

Dear Arif, firstly you get no deduction for the rent cost you are incurring on the house you are renting but are fully taxed on any rental profit from your previous home now rented. You will get a deduction for the interest, rates and insurance and other property rental related costs. Any net profit will be predominantly determined by the size of your mortgage and resulting interest bill. Any profit you make must be declared 50/50 assuming you and your wife are both on the title and liable for the mortgage. The tax rate bands for individuals are $0 - $14,000 10.5%, $14,000 - $48,000 17.5%, $48,000 to $70,000 30% and $70,000 plus is 33%. By way of example, if the rental profit is $10,000 and you split this $5,000 each you will both have income tax of $875 payable on your share of the rental profit given your tax band is taxed at 17.5%. Given the cost to rent is $19,000 and your gross income from your home is $23,000 you should carefully budget the after tax residual income to determine it isn't less than what you are paying to rent the alternative place. If it is, the exercise may in fact be futile and be financially detrimental. Its a great example of the importance of arming yourself with all the financial facts before you make financial decisions.