Question

Baldrick bought an investment property on 1 July 2018 for $2,000,000. He rented out his property from 1 July 2018. He borrowed $1,800,000 on the same day from the bank to buy the property. The term of the loan was 8 years. The building was originally constructed in 2001 at a cost of $900,000. He received rent in cash from his tenants during the year ended 30 June 2019 in the amount of $93,000. Included in this amount was a payment of $9,000 on 30 June 2019 as rent for the month of July 2019. Baldrick incurred the following expenses during the year ended 30 June 2019 in relation to the property:  State Government Land Tax $22,500  Loan Repayments ($52,000 principal and $130,000 interest) $182,000  Real Estate Agent’s fee to evict a tenant for non-payment of rent $2,300  The front window was badly damaged at the time of acquisition and replaced on 4 July 2018 $2,800  A new refrigerator was purchased on 1 March 2019 $3,800  Loan application fee (paid on 1 July 2018) $2,000  Legal costs for the loan to buy the property (paid on 1 July 2018) $2,600  Legal costs for buying the property (paid on 1 July 2018) $4,600  Stamp duty on the purchase of the property (paid on 1 July 2018) $95,000 Baldrick wants to minimise his taxable income for this year. Assume all depreciating assets, if any, have an effective life of 6 years. He does not wish to use the SBE election. Required: Advise Baldrick as to what his taxable income or loss is for the year ended 30 June 2019. You must give reasons for your answer. Your discussion must include an analysis of the pertinent sections of the relevant legislation, rulings and the relevant case law. If relevant, you must show your calculations.

Answer 1

Computation of Income from House Property is as follows.

	Income from House Property
	Gross Rent Received		93,000
	Less: Rent accruing on next year		9,000
	Less: Municipal Tax paid during the year		22,000
	Net Rent Received during the year		62,000
	Deduction U/s 24
24(a)	Standard deduction		18,600
24(b)	Interest on Housing Loan		1,30,000
	Net Income from House Property		-86,600

Based on the data available it has been assumed the Mr.Baldrick doesn't have any other business income. Net Loss from House Property is $86,600.As the Income is in negative the is no tax payable on the loss.

Following expenses are not included/allowed for House Property Calculation:

real estate agent commission		2,300
window replacement		2,800
new refrigirator		3,800
loan application fee		2,000
legal cost for loan		2,600
legal cost for buying property		4,600
stamp duty		95,000