Thinking about investing in property? Here are some important tax considerations.
Keep in mind the information provided below is of a general nature and doesn’t take into account your personal financial situation. If you’re considering whether property investment is right for you, we suggest you seek independent taxation and financial advice.
4 minute read
Interest payments, renovations and maintenance, council rates and property management fees – there are a lot of costs associated with buying and owning an investment property. The good news is, you may be able to claim some these costs as tax deductions, as long as your property is rented or available for rent.
Property investors typically claim interest charged through a mortgage on a rental property as a tax deduction. Other common tax deductions include management costs (like property agent fees), land tax, and maintenance costs (like cleaning, gardening, insurance and repairs).
Tip: Make sure you keep records of invoices from maintenance work, property managers and insurances on your investment property to satisfy your record keeping requirements at tax time.
The assets you buy for your rental property (like new appliances) will gradually decline in value as they age and become subject to natural wear and tear. This is called depreciation, and you spread the tax deduction (called tax depreciation or capital allowances) over the effective life of that asset. To find out how long you might be able to claim depreciation on assets used at your rental property, check out the Australian Taxation Office’s guide on effective life of an asset.
You may be able to claim expenses from capital works completed at your rental property, including construction and renovation. Deductions for capital works are generally spread over a 25 to 40 year period, depending on when construction started, when the building was purchased and how the building is used.
If the earnings from your rental property don't cover the costs and you're making an overall loss on your investment, your property is negatively geared. But negative gearing isn't all bad – you may be able to use that loss to offset your other sources of income, reducing your amount of taxable income.
A property is positively geared when your earnings from your rental property exceed the deductible expenses associated with it.
While it's good to be making a profit from your investment, keep in mind that if your property is positively geared, the net rental income will be subject to income tax.
Just like you'll pay tax if you earn rental income from your investment property, you'll also pay tax on any net profit you make when you sell the property. If you make money from selling your investment property, your profit is called capital gain, and the tax on this amount is your Capital Gains Tax (CGT).
How much CGT you pay depends on a few factors. For example, if you sell at a profit after more than a year of ownership, you may be eligible for a discount on your CGT.
If you make a capital loss on your property when you sell, you won't need to pay CGT.
Land tax is charged by the government on land you own, where the total taxable value of the land is above the land tax threshold determined by your state or territory.
You generally don't have to pay land tax for a property you live in, but you likely will with an investment property.
While tax benefits can be favourable, they should not be the primary factor for buying an investment property, as you may end up with an underperforming investment. As with all investments, your strategy should be aligned to your personal circumstances and risk preferences. If you’re thinking about investing, you should consider speaking to a professional financial advisor, accountant or tax specialist.
You should also make sure you check the latest tax laws for your state or territory if you’re considering investing, as these can change.
To find out more about the tax consequences of an investment property, visit the Australian Taxation Office (ATO) website.
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The Australian income year ends on 30 June. You have from 1 July to 31 October to lodge your tax return for the previous income year. If you use a registered tax agent to prepare and lodge your tax return, you may be able to lodge later than 31 October (provided you have engaged the tax agent before this date).
Tax law is subject to change. For the latest information, check the ATO website, or speak to your accountant or financial advisor.
This page is intended to provide general information only and does not take into account your individual objectives, financial situation or needs. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
Bankwest is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.