Glossary.
Negative gearing
Holding a property whose deductible costs exceed its assessable rental income, producing a taxable loss that reduces other income.
Positive cash flow
A property whose rental income exceeds its costs, producing taxable income and usually cash in your pocket. See positive vs negative gearing.
Gross yield
Annual contracted rent divided by purchase price. See rental yield explained.
Effective yield
Annual rent adjusted for vacancy, divided by purchase price.
Interest-only (IO)
A loan where you pay only interest, not principal, during a set period. See IO vs P&I.
Principal and interest (P&I)
A loan where each repayment includes interest plus a principal reduction. The principal part is not tax-deductible.
Capital works
A non-cash tax deduction (Division 43) for structural building deductions, typically 2.5% per year on post-1987 buildings.
Plant and equipment depreciation
A non-cash deduction (Division 40) for fixtures such as blinds, hot water systems and carpets. Eligibility depends on your purchase date and property type.
Occupied weeks
The number of weeks a property is actually rented in a year. The difference from 52 is vacancy. See vacancy risk.
Taxable loss
The amount by which deductible rental costs exceed rental income. This is the number the tax effect is based on — not the cash loss.
Cash loss
The amount by which cash costs (including principal repayments) exceed rent received.
Tax effect
The change in tax caused by the property's taxable result. A positive tax effect is tax you pay less.
Weekly contribution
The amount the property takes from your pocket each week after rent and the tax effect.
Cash buffer
Savings kept to carry the property through vacancies, repairs and rate rises, measured in months of the stressed weekly contribution.
Break-even growth
The annual capital growth rate at which an investment property breaks even over the holding period, given its cash flow and costs.
Capital gains tax (CGT)
Tax on the gain when an investment property is sold. Individuals may halve the gain with the 50% discount after 12 months. See the CGT guide.
Cost base
Everything the property cost you that reduces a future capital gain: purchase price, stamp duty, legal fees, capital improvements and selling costs.
Borrowing costs
Loan establishment fees and mortgage stamp duty, deductible in equal amounts over five years or the loan term, whichever is shorter.
Land tax
A state tax on the unimproved value of land you own, with thresholds that vary by state and by ownership structure.
Stamp duty
A state purchase tax on property transfers. It is added to the cost base, not claimed as an immediate deduction.
LVR (loan-to-value ratio)
Loan amount divided by property value. A 80% LVR on a $900,000 property is a $720,000 loan.
Exit liquidity
How quickly — and at what depth — a property can be sold.
Neutrally geared
A property whose rental income roughly matches its costs, so the taxable result is close to zero.