Knowledge Centre

Tax Trick to Get a $1 Million Property for $8000 a Year

Buying a $1 million investment property can seem daunting but there’s a perfectly legal way to pay just $8000 a year for it.

In Australia, the property isn’t only the best performing investment class over the last couple of decades – it’s also something that can deliver you serious tax deductions and help you cut your tax bill while you build wealth.

Owning an investment property isn’t nearly as expensive as most people think, especially after you factor in the available tax benefits, with statistics showing the average cost of a $1 million investment property is $8114 per year with an annual growth of $63,000, meaning that the net benefit to you (benefit fewer costs) works out to be $54,886 each and every single year.

While owning an investment property does generally come with a cost, on the flip side, you benefit from owning an asset that grows in value over time. We wanted to unpack what drives these numbers so you can see how this might work for you.

 

Initial Costs of Buying a Property

When you purchase a property in Australia there are some costs to get things started. This includes stamp duty payment which may depend on which state where stamp duty is higher. Building and pest inspections and legal costs for managing the registration of your purchase are only some of the initial costs you may encounter when the purchase is made. 

 

Ongoing Costs of Buying a Property

Apart from what has been mentioned above, it is also likely that there will be ongoing costs when buying a property, for instance, apartments and townhouses, or council rates for houses, water rates, insurance costs, property management fees, repairs and maintenance, and mortgage interest costs which may reduce your debt over time when you pay principal repayments. 

 

Financial Benefits of an Investment Property

When you own an investment property the benefits are two-fold. Aside from the income return, you’ll get through the rent paid by your tenants, you are also likely to receive a benefit from the growth in value of your property over time. Upon the recent calculation, Westpac data shows the averaged 6.3% growth return annually on Australian property since 1870. Considering that this data is from 2019 and with the continuous rise of property prices, it is presumed that the numbers would likely be significantly higher.

 

Property Costs are Tax Deductible

If the expenses on your investment property are more than the income you receive, you can claim this amount as a tax deduction at your marginal tax rate to reduce the after-tax cost of running your property. Based on Australian marginal tax rates, if your annual taxable income is above $45,000, your marginal tax rate + Medicare levy is 34.5%. This only means you’ll receive a tax refund of $0.345 for every dollar your investment property costs you. Meanwhile, if your income and tax rate are higher, you’ll receive even more back at tax time. This then will give you back at least a third of whatever you pay.

Buying an investment property is something that can seriously accelerate how quickly you get ahead. But it does come with risks that are important to manage. It can fast-track your money success and go a long way to set up the future you want.

 

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

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