Sarah owns an investment property that generates $25,000 annual rental income. Her annual expenses are $18,000 in interest, $3,000 in rates and maintenance, and $2,000 in management fees. What is her tax position?
Correct Answer
A) Positive gearing with $2,000 profit
Sarah's rental income is $25,000 and total expenses are $23,000 ($18,000 + $3,000 + $2,000). This creates a positive cash flow of $2,000, meaning the property is positively geared.
Why This Is the Correct Answer
Total deductible expenses are $18,000 + $3,000 + $2,000 = $23,000, which is less than the $25,000 of rent. The property is positively geared, and the $2,000 net rental income is added to her assessable income.
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