Investment properties are treated differently whether you’re an Australian Tax Resident, or not. Being an Australian Tax Resident doesn’t mean you have to be a Citizen of Australia, it just means your normal place of abode or living arrangements are here.
In this blog, we’ll concentrate only on Australian Tax Residents.
There are also some differences whether the investment property is Residential (provided for families to live in) or Commercial (provided for businesses to operate out of).
INCOME FROM INVESTMENT PROPERTIES
Income from investment properties is known as Rent. All Rent received must be declared in the owner(s) annual income tax return. The rent then determines how much income tax the owner has to pay. The rent and the tax can be reduced if there are expenses the owner incurs on the rental property.
TAX DEDUCTIBLE EXPENSES OF INVESTMENT PROPERTIES
Rental property tax deductions can be used to minimise the tax. Following are some examples:
- Interest – If money is borrowed from a bank or other financier, interest will usually be charged on that loan.
- Agent’s fees – If you rent your property out through the Real Estate Agent;
- Insurance – The insurance you pay for loss of property and/or loss of rent;
- Council rates – For sewerage and rubbish services;
- Water – If you have a water-efficient property, some of this may be charged onto the tenant;
- Repairs/maintenance – For things like lawnmowing, gardening or repairing the property;
- Depreciation – If it’s a new property, you may be able to claim depreciation on the building cost and the fittings. If it’s a previously used property, you may still be able to claim depreciation on the building costs if the property is less than 40 years old or if it has substantial renovations done to it;
- Travelling costs – None if you visit a Residential investment property but may be claimable if it’s a Commercial Property.
CAPITAL GAINS TAX ON INVESTMENT PROPERTY
If an investment property was purchased after 19 September 1985 and is sold for a capital gain, half of the gain may be tax free. See our Capital Gains Tax blog for further details and information.
Rental properties are a large investment and can often demand time to manage them. NBC are property tax specialists and can assist with either a decision to purchase an investment property, convert your residence into a rental property or assist with the financial and tax management of existing properties. The tax landscape is constantly changing as it relates to investment properties so professional tax assistance is a must.