Your property investment may make a profit or a loss. If it makes a loss, you may be able to reduce your tax bill. If it makes a profit, you will need to think about the most effective way to meet your tax obligations.
Using losses to help reduce your personal income tax (negative gearing)
Many rental properties make a loss in the early years, especially where a significant loan has been taken out to purchase the property and the rental income does not cover the loan repayments and other expenses.
It may be possible to offset the losses from a residential property investment against your personal income to reduce your tax bill (this is also known as negative gearing). You should remember that you are still making a loss from your investment. Investors who adopt this strategy depend on the property achieving an increase in value over time to compensate this loss (capital gain).
For more information on offsetting tax losses against your personal income, see our section on Personal income tax. We recommend talking to your accountant about tax.
Possible structures for tax
The most efficient way to manage your tax obligations depends on the nature of the property and the ownership structure. For example, if a property makes a profit and is owned by a family trust, income may be able to be distributed to beneficiaries at their personal tax rate, depending on the terms of the trust deed.
For an overview of the options for ownership structures and the tax implications of each, see our section on Ownership Structures.
This material is for information purposes only. You should seek professional advice related to your individual circumstances. While The National Bank has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, The National Bank does not accept any responsibility or liability arising from your use of this information. Our lending criteria, terms, conditions and fees apply.