Owning an investment property in Australia often means taking on a fair amount of debt. While you hope to be more profitable in the future, it’s important to understand the tax implications of the debt you take on to manage your properties. This starts with knowing what you can claim as a tax deduction. Some potential deductions include:
- Strata fees
- Land tax
- Council fees
- Advertising for tenants
- Property management fees
- Loan interest
- Depreciation, including the building itself and fixtures such as stoves and carpets
- Pest control
- Repairs and ongoing maintenance
- Landlord or building insurance
- Accounting fees
This list does not represent everything you may be able to claim as a tax deduction. It’s important to seek advice from an experienced accountant to help reduce your tax obligation.
What is Negative Gearing?
The term negative gearing means that the cost to own and manage your rental property was greater than the income you received from it. You can count the difference between the two figures as a loss and you don’t have to pay taxes on it. For example, if you took in $50,000 but spent $25,000, the Australian government would consider your taxable income at $25,000.
Capital Gains Considerations
When you sell your investment property and make a profit on the sale, this amount is called a capital gain. You must add the profit you earned from the sale of your property to any other income you earned that year and pay tax on it. The government does allow some concessions that all investors should be aware of before they prepare to sell their property.
When determining your capital gains tax, the federal government considers the price you originally paid for the rental property along with fees such as agent’s selling commission, stamp duty, and legal fees. This is good news because it helps to lower your tax debt by reducing the amount of your profit for capital gains purposes.
If you owned your investment property for more than 12 months, you can claim a 50 percent deduction on your capital gains tax. This is significant savings that encourages people to hold on to their investment properties for as long as possible.
You can continue to claim the expenses listed above as long as you own the property. However, you can’t claim a tax deduction for renovations to increase your property value or repaying the principal on your real estate loan.