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A Pair of Australian Taxpayers Evaluated Against Each Other

Case study: You could be an investment property owner too for $35 per week

Becoming an owner of an investment property can be within easy reach, especially when prospective investors claim all tax deductions they are entitled to.

To find out how claiming all these deductions can help an investor acquire a property, let us study the case of two ordinary Australian taxpayers – Bill, who thinks he cannot afford to buy at this time, and Kate, who is already an owner of an investment property.

The Deductions you can Claim.

Income generating property owners are allowed under Australian Tax Office rules to claim several deductions for costs that are related to owning and maintaining a property including repairs and maintenance, interest, rates and property management fees.

A non-cash deduction for the wear and tear of the property that can occur over time can also be claimed by investors. This type of deduction is referred to as property depreciation.

The Situation of Bill and Kate.

Bill wants to own an investment property but he thinks that he cannot afford to purchase one at this time

The amount of taxes he pays out of his $85,000 salary is $20,707. This is after deducting basic expenses like donations, clothing allowance and general accounting fees.

Kate has the same salary as Bill. However, she was able to buy a $600,000, three –bedroom rental property over a year ago after saving for a deposit. She rents her property for $545 weekly, earning her a rental income of $28,340 a year. Taxes are also paid for the rental, so Kate’s earns a total income of $113,340.

Kate claims the same basic expenditures as Bill, plus she is also entitled to deductions for costs relating to owning a rental, including repairs and maintenance, rates, insurance, interest and management fees. The expenditures for a standard three bedroom property would reach about $39,067. She also consulted with a tax professional and got a depreciation schedule stating that she is entitled to claim another $14,200 representing depreciation deductions in the initial financial year.

The table below shows a comparison between Bill and Kate relating to their before and after scenarios:


To calculate Kate’s depreciation deductions, the diminishing value method and figures from the first financial year of ownership were used. Note that this is just a general example. The scenario is different for each person. It is recommended that you seek advice from a professional.

As shown above, Bill’s income after taxes is $63,293. Though Kate earns the same wage and her financial status is the same as Bill’s, her income generating rental allows her to claim the amount of $53,267 in deductible expenses including depreciation. As a result, Kate’s taxable income is reduced to only $59,073, letting her pay an income tax of only $11,814.

By claiming all deductions she is entitled to, Kate wage after taxes is just a difference of $1,834 annually. Thus, it is costing her $35 weekly to own a rental after tax.

Prospective investment property owners should seek professional guidance from Specialist Quantity Surveyor to find out what depreciation deductions they can claim when they have bought a property.

The information contained in this article is not meant to be offer financial or taxation advice. Investors should meet with a financial expert and an accountant to obtain a full before and after scenario of their own tax position based on their own situation.

If you need tax advice or guidance, contact PJS Accountants. We offer expertise in managing your tax affairs with a complete range of compliance, corporate and individual tax services. Our clients include large companies, SMEs, family businesses and individuals. The ever-changing tax laws and requirements could put businesses and individuals at risk. Putting nothing to chance! Talk to one of our team members now!