A net rental property loss occurs when allowable rental expenses exceed the rental income earned for the year. An administration service such as PropVA may help organise the records, but the broker remains responsible for the figures used in an application.
Start with the client’s tax return and rental schedule. Then separate rent received from costs such as rates, insurance, property management and eligible mortgage interest. Use the current ATO’s guidelines when deciding which expenses belong in the tax calculation.
What a net rental property loss means
The loss is a tax result, not a complete measure of the property’s cash flow. Some deductions may not involve a current cash payment, while principal repayments are cash outgoings but are not an interest deduction. A broker should therefore keep the tax calculation separate from the lender’s assessment of rent and property debt.
Documents to collect
- the latest personal tax returns and notices of assessment
- the rental schedule for each property
- current lease or property manager statements
- loan statements that separate principal from interest
Match each property, loan and rental schedule before entering the figures. If records are incomplete, ask the client or their tax agent for the missing source documents before calculating servicing.
Tax and lending treatment are different
Support from PropVA can reduce administration, though it does not replace a policy check. Negative gearing describes an investment that produces a deductible loss. The tax outcome does not tell a broker how much rental income a lender will accept or which expenses it will add back.
Record the lender policy used, the accepted rent and every add-back. If a tax or Centrelink consequence affects the client’s decision, refer the client to a registered tax agent or the relevant government service rather than giving tax advice.
Broker check before submission
Reconcile ownership, rent, debt and deductible expenses for every property. Explain any difference between the tax loss and the servicing calculation in the file notes. Recheck lender policy when the loan purpose or property type changes.
