8 Important Tax Tips for Property Investors
With so many great tax benefits on offer, it’s no surprise that property continues to be Australians’ preferred method of investing. However, with tax time upon us, it’s important for investors to understand their obligations before lodging a claim with the tax office.
Whether you plan on submitting your return yourself or working with an accredited accountant, here are our top eight tips to help property investors get the most out of this year’s tax return.
1. Be aware of the income you need to declare
First and foremost, you need to have a clear idea of the income you’re required to declare. The main form will of course be the rent payments you receive, but you will also need to include any additional income such as money from the bond you’re entitled to keep, insurance payouts or any additional lump sum payouts associated with your property.
2. Recognise what you can claim
Property investors can claim quite a considerable number of tax deductions, and knowing these ahead of time could end up saving you thousands. Expenses such as management fees, insurance, advertising for tenants, council rates, gardening costs and reasonable travel expenses to inspect the property can all be claimed, but it’s a good idea to check with your accountant for a comprehensive list.
3. Understand what you can’t claim
Expenses paid for by the tenant can’t be claimed, and neither can any expenses accumulated through your own personal use of the property. In most Australian states, you can’t claim expenses relating to acquiring or disposing of the property, such as the purchase cost of the property, conveyancing fees, advertising costs, building inspections and stamp duty. However, these costs can form part of the cost base of the property – which brings us to our next point!
4. Work out the cost base
As mentioned above, the cost base is made of the expenses associated with the purchase and sale of the investment property. Working out the correct cost base is important, as it can impact the capital gains tax you may be required to pay. The cost base is deducted from your overall proceeds and the remaining amount is your gross capital gain – although the amount of tax you will need to pay on this figure is dependant on a variety of factors.
5. Don’t forget to claim interest
Any interest you are paying on a loan that has been used to purchase an investment property can be included in your claim. If you have one designated loan for the property, you will be eligible to claim the full interest amount, but if you have an account you use for the property as well as personally, you will need to clearly identify which interest payments are for the purchase of the property.
6. Take note of any repairs
After the first 12 months of owning the property have passed, you may be eligible to claim the cost of any further repairs during a period in which the property is leased. This may include repairs or maintenance such as plumbing, roofing, guttering, fencing and electrical.
7. Find out if you’re exempt from capital gains tax
While most investment properties will be subject to capital gains tax when the time comes to sell, there are a few examples where the investor may be exempt – such as when the property has previously been used as the owner’s main residence within the last six years.
8. Make sure to save your records
Finally, it is a requirement of the tax office that property investors hold on to records such as their purchase contract, all documents relating to capital gains tax, financial records and evidence of any expenditure on property improvements. These documents all contribute to forming your cost base and are likely be required in the years to come. Store them somewhere safe so you can avoid any frustration or loss of income if and when you eventually decide to sell.
Please be aware that this is general advice only. For more information specific to your individual financial circumstances, speak to a trusted financial professional and make sure to consider all of your options before making any final decisions.