2. Accounting and Cashflow

When building a successful property portfolio, lending is only one side of the equation. The other crucial pillar is accounting and cashflow strategy. While we’re not accountants — just as we’re not brokers — our role as Portfolio Strategists is to understand the key levers that influence after-tax performance and long-term affordability, and to equip our clients with the right questions and ideas to take to their trusted professionals.

This chapter is not about giving tax advice. It’s about recognising the strategies, structures, and cashflow mechanisms that can either enable long-term growth or create financial pressure. Our job is to ensure every recommendation is backed by a strong cashflow foundation and that we can communicate all cashflow-related matters with clarity and confidence.

Why is this so important? Because poor cashflow planning can result in a forced sale — and in property, this can be incredibly costly. Transaction costs of 6% to acquire and 3% to sell is a huge amount when timed incorrectly, which would severely damage a client’s journey. That’s why we must prioritise accuracy and stability in our advice.

Most importantly, cashflow is one of the biggest concerns for clients — especially when they’re on the edge of a new purchase. If we can confidently walk them through how the numbers work, where the risks are, and how we’ve accounted for buffers and contingencies, we’re not just providing advice — we’re building trust for them to take the leap.

From negative gearing and ownership splits to buffer management and equity access, this chapter will give you the knowledge to ensure every portfolio strategy is scalable but also financially sound.

ARI is our amazing tool that allows us to accurately forecast cashflows on a deal. This takes all the inputs and presents us a detailed projections on cashflow and property performance.

How to walk through ARI calculations to a client

A critical part of building a scalable property portfolio is ensuring that each new investment can be comfortably held over time — especially as most are negatively geared. As strategists, we must be confident in evaluating whether a client can realistically absorb the holding costs of a new property without creating financial strain.

That’s why we always want to accurately capture the client’s monthly savings rate during our data audit. This figure is key — it tells us how much disposable income the client is currently able to set aside after expenses (personal & portfolio).

When paired with the numbers from ARI, we can evaluate the projected monthly cashflow position after the next purchase.

By comparing the client’s monthly savings rate with the estimated monthly shortfall on the next investment, we can quickly answer a key question:

If the answer is yes, the numbers say they can proceed. Of course, this is assuming that their budget is accurate — which is why it’s important we ensure clients are giving realistic savings figures (not best-case scenarios). When needed, encourage clients to complete a basic monthly budget with their accountant or financial adviser.

It’s worth noting that our ARI calculations are typically very conservative — we often:

It’s also worth noting that we typically discuss the Y1 calculation, and as time goes on with rents increasing and debt paid down or offset, the number continue to improve.

This means that if the cashflow looks feasible on ARI, the real-world performance will often be slightly better.

Even if the numbers add up, some clients simply won’t feel comfortable carrying another negatively geared property — even if it’s easily affordable. This is where your role as a strategist becomes vital.

You may need to gently challenge their mindset, showing how short-term discomfort (e.g., -$300/per week) can deliver long-term gains in capital growth or rental uplift. The key here is to highlight that we’re in property to build equity and that needs to be factored in, not just the cashflow we put in.

At the same time, don’t push — your job is to guide, educate, and align the strategy with their risk appetite.

Some helpful discussion prompts:

As a rough benchmark:

While a client’s monthly savings are a key indicator of their ability to hold a property, buffers play an equally important role in ensuring financial comfort and resilience.

A buffer refers to cash set aside in an offset account or savings account that is not allocated to deposits or expenses — it’s a financial cushion designed to cover unexpected costs, temporary income disruptions, or holding cost pressures.

Let’s say a client only saves $1,000 per month, and the next investment property is expected to cost them $700 per month in negative cashflow.

At face value, this might feel quite concerning.

But if they also have $30,000 sitting in an offset account, then that extra buffer covers over three years of negative cashflow at $700/month. This completely changes the perceived risk and can get clients over the line as they know they have a long way away before there are any real financial concerns. In three years, cashflow gets better with rent increases, interest rates are likely to be lower, and they are likely to have higher incomes as well.

💡 Key Principle: A lower monthly savings rate is not necessarily a blocker — as long as a strong buffer exists and the client feels comfortable drawing on it temporarily.

Some talking points to use with clients:

Negative gearing is one of the most important cashflow considerations in residential property investment. As strategists, we must be able to explain how it works, how it influences holding costs, and how we factor it into our after-tax cashflow estimates using a client’s personal income and tax rate.

Negative gearing occurs when the cost of holding a property (interest, management, maintenance, depreciation, etc.) exceeds the rental income generated. This results in a net loss, which can be offset against the investor’s personal income — reducing their taxable income and resulting in a larger tax refund.

This doesn’t eliminate the loss, but it reduces the true cost of holding the property — and can make a seemingly negative property more sustainable than the initial calculation before tax is accounted for.

We want to help clients understand that pre-tax holding costs don’t tell the full story. Many clients may hesitate at a $2000/month shortfall — but become much more comfortable when they see it’s only $1000/month after tax.

You can say: “This property has a projected shortfall of $2,000 per month, but based on your income bracket, you’ll likely get around $12,000 back at tax time — meaning the real impact is only around $1,000 per month.”

Normally, when someone owns a negatively geared investment property, they experience the financial loss from holding the property up front, and then claim it as a tax deduction when they lodge their tax return after the financial year ends.

With a PAYG withholding variation, the Australian Taxation Office (ATO) allows an investor to reduce the amount of tax withheld from their salary throughout the year to reflect their anticipated tax deductions (including property losses). That means more take-home pay in their regular paycheck — helping to ease cashflow pressure during the year.

This reduces immediate pressure of funding a negatively geared property — client receives tax relief as they go instead of at year-end.

Negative gearing inside a Self-Managed Super Fund (SMSF) operates differently to negative gearing in a personal name or trust.

Just like in personal name investing, negative gearing in an SMSF refers to a situation where the expenses of owning an investment property exceed the rental income it generates. The difference is that these losses occur within the super fund, and can only be offset against income earned by the fund — not against the client’s personal income.

Why It’s Treated Differently to Personal Name Investing

In personal investing, losses can result in substantial tax refunds, often creating a compelling cashflow advantage. But in SMSFs, the concessionally taxed environment means the benefit of a loss is reduced — 15% tax on rental income means only 15% of the loss is “recovered” via tax relief.

Let’s say your client’s SMSF purchases a residential property that produces:

If the fund receives:

Total fund income = $45,000

Taxable income after property interest and expenses = $45,000 - $35,000 = $10,000

Tax payable = 15% × $10,000 = $1,500

So the $10,000 loss reduced tax by $1,500, not the ~$3,700+ you’d see in personal name investing on a 37% tax rate.

One of the most important distinctions when investing through a trust is that you cannot claim negative gearing benefits personally. That is, if a trust-owned property runs at a loss (e.g. due to interest, expenses, or depreciation exceeding rental income), this loss cannot be passed on to beneficiaries to offset their personal taxable income.

Instead, the loss is retained within the trust and carried forward to offset future income generated by the trust. This means clients investing through trusts will not receive annual tax refunds from property losses the way they might when investing in their own name.

Debt recycling is a financial strategy that allows clients to convert non-deductible (bad) debt — typically a client’s PPOR home loan — into deductible (good) investment debt over time.

It’s a powerful strategy for accelerating wealth creation while increasing tax efficiency, especially for clients with significant owner-occupier loans.

Debt recycling typically involves the following steps:

As a strategist, it’s important to recognise when a client might benefit from debt recycling — even if they haven’t asked about it directly. One common indicator is a client with significant cash or offset balances, combined with a remaining home loan.

💡 What this tells us: This client has liquidity, discipline, and equity, but their cash is not working hard enough. They may be mentally tied to paying down their PPOR, not realising that recycling that equity and directing it toward investment could get them better long-term returns and that there is opportunity cost here.

In this scenario, you should explain to the client that they should be debt recycling and paying down the loan to draw it back out and they are then able to use it for investment purposes, while claiming tax on the interest. This can also help out with their borrowing capacity as now more of the debt is tax deductible and therefore lower in terms of it’s effective rate.

Depreciation is another powerful benefit available to property investors. It’s a non-cash deduction that allows clients to reduce their taxable income based on the wear and tear of their investment property — even though they haven’t physically paid this money out.

There are two main types of depreciation:

Although depreciation doesn’t reduce the actual cashflow loss on a property, it increases the tax refund, which softens the real out-of-pocket cost of holding an asset.

Depreciation should always be considered a bonus, but never what we aim for when looking for a property.

While depreciation offers upfront tax benefits by reducing assessable income during ownership, it can increase your capital gains tax liability when you eventually sell the property.

This is due to a concept called “depreciation clawback”, specifically for Division 40 (Plant & Equipment) items.

Let’s say:

From this, the CGT discount (50% for assets held over 12 months) would then apply, and the net capital gain of $65,000 would be added to the investor’s taxable income.

Strategic Insight:

Depreciation is a great bonus when it comes to investment property, but it is a bonus rather than a major consideration. It allows you to claim a tax deduction for the wear and tear of the building and its fixtures, which can reduce your taxable income and improve cash flow. So yes, it helps, but it’s important to remember what it actually represents: a loss in value of your asset over time.

We focus first on the fundamentals that drive real returns: market pressure, land value, location, rental demand, and long-term sustainability. If a property stacks up on those fronts, depreciation is simply the cherry on top.

As investors scale their portfolio, land tax becomes an increasingly important consideration. While it’s often negligible with a single property, accumulating multiple properties — especially in the same state — can lead to significant annual land tax liabilities that can impact cashflow and investment decisions.

Land tax is a state-based tax levied annually on the unimproved value of land that exceeds a certain threshold. It applies to investment properties only — not your primary place of residence.

Each state or territory in Australia has different thresholds, rates, and exemptions, and most importantly, land tax is calculated per ownership entity, not per property.

Key Points to Know:

When clients are building portfolios, land tax is often overlooked early in the journey, but as more properties accumulate in the same state or entity, this cost can start to erode cashflow and returns.

In states like NSW, QLD, SA, and WA, land tax is calculated separately for each legal owner or entity. That means if someone owns:

VIC is different and more aggressive.

This means:

So, in summary:

When two people purchase a property together—such as a couple, family members, or business partners—the way they structure ownership splits can have significant implications for taxation, cashflow benefits, and capital gains in the future.

While the legal ownership is recorded on the property title and loan, the ownership split also determines how income and expenses are allocated between the two parties for tax purposes. This is why it’s important to understand both the strategic and accounting consequences of different ownership arrangements.

Common Ownership Structures

This means if one person earns significantly more than the other, or if one person needs more tax deductions, you may want to adjust the split strategically—but this can only be done if you’re listed as tenants in common and agreed upfront.

Strategic Considerations When Choosing an Ownership Split

Trusts are a common structure used by investors to hold property outside their personal name, often for reasons related to preserving borrowing capacity, tax efficiency, asset protection, or estate planning. However, trusts come with their own accounting complexities and should be set up with clear intent, long-term planning, and professional advice.

Here’s a breakdown of the key advantages and disadvantages from an accounting perspective:

Investing within a Self-Managed Super Fund (SMSF) comes with a different set of cashflow considerations compared to personal or trust-based portfolios. While the lending and structuring mechanics are more complex, SMSFs can offer a good opportunity for many clients looking to take control of these funds.

An SMSF is its own financial entity, with income and expenses occurring within the fund. This includes:

If a client is worried about cashflow stress in their personal portfolio—or is close to their borrowing capacity personally—using their super can be a way to continue building wealth without affecting their personal cashflow.

Here’s why:

In practice, clients can add to their retirement savings through property without having to touch their take-home income.

If a client is showing cashflow constraints in their personal name—or has paused buying due to monthly affordability concerns—consider exploring the super pathway. With the right level of super balance (typically $175k–$200k+ total), good contributions, and an appetite for long-term investment, SMSFs can be a compelling vehicle to continue the portfolio journey with minimal personal cashflow impact.

⚠️ Important: It’s also important to flag the complexity of setup, borrowing, and compliance, and always refer clients to a SMSF-qualified accountant before acting. Whenever talking about SMSF, we want to put heavy disclaimers on that we are not licensed and this is general advice.

⚠️ Important: SMSFs need consistent income to cover holding costs. If contributions stop or fall short (e.g. job change, business cashflow issues), the fund may be forced to sell the asset or use cash reserves. Always ensure the client has a clear plan for ongoing contributions, especially if they’re self-employed or semi-retired.

For many business owners, one of the biggest tax challenges is how profits are distributed. If profits are paid directly to the individual, they’re often taxed at the highest marginal tax rate (up to 47%), which drastically reduces how much is left to invest and grow wealth.

A bucket company (also called a corporate beneficiary) is a tax structuring tool that allows profits from a discretionary trust (often the trading entity or business structure) to be distributed to a company instead of directly to an individual.

Why? Because companies are taxed at a flat 30% (or 25% for base rate entities), which is significantly lower than most individual tax brackets.

The retained profits in a bucket company can be used in several ways:

This is especially helpful for treasury management, where the client wants to:

This strategy works best when:

As portfolio strategists, we’re not accountants — but we can: