Have you investigated potential tax deductions?
When you own an investment property, you can often claim a tax deduction on a variety of expenses related to the property during the time that it’s rented out, or available for rent.
Such items include but aren’t limited to things like:
- Advertising costs
- Property management fees
- Borrowing expenses, including loan interest charges and fees
- Council rates, land tax and strata fees
- Building depreciation and the loss of value over time in fittings and fixtures like ovens, dishwashers, carpets and hot water systems
- Repairs, maintenance, pest control, cleaning and gardening costs
- Building and landlord insurance
- Phone costs and stationery
- Accounting and bookkeeping fees.
Note, travel undertaken to inspect the property is generally no longer a claimable expense in Australia. See other things you can claim on the ATO website.
Are you across other tax implications? How negative gearing can reduce what you pay in income tax
If your property is negatively geared (which means the interest and other costs you incur are more than the income your investment property produces), the loss can reduce the amount of tax you pay on your earnings (i.e. your salary) at tax time.
To give you an example, say you earn a salary of $70,000 and a rental income of $20,000 over a 12-month period. If your net rental property expenses are $35,000, your rental property loss will equal $15,000 for the year, which means you’ll only pay tax on $55,000 of your salary.
If your property is positively geared on the other hand (meaning the rent you’re generating is more than the cost of owning the property) you’ll have to pay tax on the net income the property generates.
When capital gains tax is payable
If you sell your investment property down the track and make a profit, capital gains tax may be payable. The good news is, the price you paid for the property (including buying and selling costs, like stamp duty, legal fees and the real estate agent’s commission) will reduce the amount considered as ‘profit’.In addition, if you’ve owned the property for at least 12 months, 50% (rather than 100%) of the profit you make will be subject to capital gains tax.
Other hints to ensure tax entitlements are received
From the get-go, keep any relevant documentation so you’re able to claim everything you’re entitled to, and ensure you declare all your rental-related income in your tax return each year.
You'll also need to keep records of the date and costs of buying the property for capital-gains-tax purposes, and anything regarding significant changes that may take place, such as repairs, improvements or should you decide to subdivide and sell part or all of the property down the track. Remember that keeping these records will help make sure you don’t pay more tax than you need to.