Property and Tax 101

Can you believe we are already mid way through 2013! Not only did this last six months seem to fly by it means it’s tax time again. If you own an investment property it’s time to start pulling out those receipts. Here are the basics on owning and investment property and tax time.

When you invest and lease property it's important to keep records from the beginning. Hopefully you'll have carefully filed away receipts and proof of any expenses throughout the year relating to your property so you can claim everything you're entitled to. Hint: if you didn't have a system in place this time get one for next year! A simple folder to collect receipts and records can make this time of year so much easier.

Declare your income

You will be required to declare the full amount of rent you earned in your tax return. If you have a managing real estate agent an annual summary should be provided to you. There may also be other rental-related income you need to consider so discuss any other associated payments you have received with your accountant. If you are leasing out residential accommodation, you are not liable for GST on the rent you charge.

Expenses you can claim

Whilst you pay tax on any rental profit you make, you are eligible to claim tax deductions related to the expenses you incur whilst owning and maintaining any investment properties. By claiming the available tax deductions, you can reduce your rental profit and ultimately reduce your taxable income.

Some expenses can be claimed immediately and some are claimed over a number of years.

When you have work done to your property, take note of whether the work is a repair or an improvement. Repair costs are deductible in the year they occur, but the cost of improvements (capital costs) become part of the cost base, which is used to work out your capital gain or capital loss when you sell the property.

Some examples of expenses you can claim for your investment property are listed below:

  • Bank fees for your loan account

  • Interest paid on your loan

  • Your real estate agent management and commission fees

  • Council rates

  • Body corporate fees

  • Land tax

  • Borrowing expenses such as loan establishment fees, title search fees, costs for preparing and filing mortgage documents, stamp duty charges, valuation fees and mortgage insurance

  • Home and contents insurance

  • If you supply or pay for electricity, gas, Internet service fees or Foxtel you can claim these charges

  • Any professional cleaning, pest control and landscaping maintenance costs

  • Capital works or construction costs

  • Advertising charges to secure tenants

  • Legal fees incurred during the sale or purchase of an investment property or costs associated with evicting a non-paying tenant and terminating a lease

  • The decline in the value of the property

Selling your investment property

You may make a capital gain or capital loss when you sell your investment property. You pay capital gains tax on your capital gains. If the property is new residential property, you may also be liable for GST on the sale.