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Who wants to know about tax and investment properties?

March 5, 2024

Paying tax on investment properties is an inevitable fact of life for any investor. And if you want to march into this thing with more confidence, it's important to know what to expect up front. On one hand, for example, you may be liable for tax on capital gains and rental income, but on the other hand, there could be ways to do things like negative gearing to reduce the amount you owe.

When investing in property, several different categories of taxes apply. We take a brief look at them here.

Taxes and investment properties

Some of the main taxes that apply to investment properties include:

Stamp duty: This is the tax you pay when your investment property is transferred to you from the seller. The amount depends on which state (or territory) you live in, the property’s purchase price and whether you’re a first-time buyer (in which case you could qualify for an exemption).

Land tax: Like stamp duty, each state or territory has its own land tax rate. Land tax is paid yearly when you reach a certain threshold calculated on the “unimproved” value of any land that’s not your principal place of residence. Unimproved value refers to the land itself – so it excludes buildings, landscaping and other features.

Income tax: Investment property income is taxable, just like any other income you earn. Each year, the income on your investment property is combined with your other personal income from your job and other investments and assessed together in your annual tax return. 

Capital gains tax (CGT): If you sell your investment property, any profit could be considered a capital gain and would need to be declared on your income tax return.

Property tax questions to ask your accountant

Getting advice tailored to your actual circumstances is key. But where to begin when you Zoom into a session with an accountant or property tax expert? The following topics are by no means exhaustive, but could be a useful place to start. 

Positive and negative gearing

Investment properties can be either positively or negatively geared, and both have their benefits. 

Positive gearing

When receiving more rent from tenants than what’s owed on interest and other property-related expenses, properties are typically positively geared. 

When this happens, the ‘extra’ cash flow could, for example, help you to repay your loan, add to your savings, or cover other life expenses.  

Negative gearing

A property is negatively geared when the rental return falls below interest repayments and expenses.

When this happens, any net rental loss experienced may be offset against your other income – and can be used to reduce the overall amount of tax you have to pay. 

What’s better?

The nuances are best left to the experts who have the full picture on your situation. Like your accountant.

Rental property deductions 

There are a number of property tax deductions that property investors can claim as a deduction against rental income in a given tax year. An experienced professional can help you claim everything you’re due. 

Some, like interest on your loan, property management fees, owners corporation fees, council and water can usually be claimed immediately. Others, like borrowing costs and depreciation (or wear and tear) are typically claimed over time. 

Capital gains tax (CGT) 

Unlike the property you live in, investment properties are subject to CGT, when sold and any capital gain made is added to your other income to give you your total taxable income. Some states give tax breaks for investment properties held for a certain period,  but policy and regulations change from time to time – so it’s an important point to check with your tax advisor.

When working with your accountant to calculate a capital gain or loss it’s a good idea to keep a record of all expenses relating to the purchase or sale of the property as these may form part of the costs that could reduce any capital gain.

The best tax result when you invest?

Doing your research and consulting a qualified expert could help you get the best tax result as a property investor. The above are just some of the considerations to keep in mind if thinking about investing in property. 

As well, the ATO provides a guide to tax-smart tips for your investment property for every part of the property buying, owning and selling process, as well as things to remember when your tax return is due.

Keen to learn more? 

Explore the range of Bank Australia home loans or read about what’s involved in borrowing to invest.

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