Investment Property Taxation Advice

Investment properties can be complicated!

Seeking professional advice in relation to income and expenses claimable on your investment property will ensure you maximise your investment, and maximise your taxable profit/loss on the property while complying with Australian Tax Office (ATO) regulations.

Over the last number of years, the ATO has updated rules around things such as the ability (inability) to claim travel to inspect your investment property and claiming building costs allowance.

It is important to seek advice from a professional to ensure you have the most up to date information.

The annual profit incurred on your investment property is added to your other income less expenses, resulting in your annual taxable income.

Tax is then calculated on this taxable income, at the relevant marginal tax rate.

When your investment property expenses exceed the rental income received it results in a loss for the year. This is known as negative gearing. This loss can be applied against your other income less expenses, to obtain your annual taxable income. Again, this tax is calculated on this taxable income, at the relevant marginal rate.

Note: other income can include things such as, but not limited to: wages, interest income, dividend income, other investment income, net capital gains etc.

The sale of an investment property creates a capital gain event.

If sold at a profit, the gain is included in your taxable income and assessed at your marginal tax rate.

If sold at a loss, unlike the above, the loss is not applied against your other income and expenses.

It can only be applied to reduce any current year capital gains. The balance of the loss is then carried forward to future years and can be applied to any future capital gains.

Yes, you can subdivide an investment property.

It is worth getting advice from your accountant when making the decision to subdivide, as there can be several factors that need to be considered prior to you making this decision.

Factors that need to be taken into consideration can include:

- Was the property your principal place or residence?
- Would the subdivision of the property result in land development?
- Are you required to register for GST?

It is important to maintain excellent records of the purchase, costs, valuations, sale etc information and documentation.

For capital gain purposes, the contract date is the purchase date of an investment property.

Note, the date of settlement is note the date of purchase.

The cost base of an investment property obtained via an inheritance can vary due to the circumstances of the original owner.

This can get quite complicated in which case we would recommend seeking advice from your accountant.

In Australia, we do not pay tax on the value of the property inherited, however, if you were to sell the property you need to consider capital gains tax.

Some of the things to consider are as follows:

- Did the original owner live in the property or rent it out (and for how long)?
- When did the deceased acquire the property?
- How did you use the property?
- Do you own any other properties?

Everyone’s circumstances are different, so it’s best to get expert accounting advice.

Most expenses, that directly relate to your investment property are deductible.

The most common investment property deductions include:

- Council rates;
- Insurance;
- Interest on loans;
- Agent/Management fees;
- Repairs and maintenance;
- Land tax; and
- Water rates.