Top Investment Property Tax Deductions for Australian Investors
Investment in property is a good idea for many reasons, and although you might be in two minds about it, there are some very favourable financial benefits that property investors can receive in Australia to help their financial situation and achieve financial freedom.
For instance, when tax time arrives, did you know that you can gain some top investment property tax deductions when you choose to invest in Australia-based property, even as an Australian expat? It’s true, you can really benefit from investment property tax deductions and start fully reaping the advantages of your investment property.
So, if you have decided to choose a property as your investment property and want to know about the top investment property tax deductions you can gain, this article is the place you’ll find them! Let’s start with the list of tax tips!
Property loan interest and investment loan fees
If you’re one of the property investors looking for tax deductions, your loan interest is one source of a tax deduction you can claim even if you’re returning to Australia since being an expat. Any bank fees or bank charges that you have accumulated can also count as investment property tax deductions.
Here’s a quick example. You might have built up a $22,000 interest amount. The interest accrued might not be the only expenses you have to pay. It’s possible that you have accrued investment loan fees as well–say $220 in investment loan fees. If this describes your situation, you are able to claim expenses such as these on the personal tax return.
Claim expenses for land tax
Are you wondering whether you can also claim expenses for land tax as an expat? The answer is that yes, you can. If your investment property has a rented dwelling, land tax is another of the investment property tax deductions that you can claim.
The only things to think about when you claim expenses for land tax are that each state has a different timing as to when you can claim it and that each state’s levy is different. Therefore a tax advisor will be able to assist you with this claim and make sure you claim expenses in the right amount.
Advertising expenses as an investment property tax deduction
Another of the investment property tax deductions are the advertising expenses property investors might have to pay to fill investment properties with tenants.
Say you advertise your property online and have to pay for advertising fees. You can claim expenses accrued on your tax return in relation to your income. This investment property tax deduction can be done during the same year that you accrued and paid for the advertising expenses.
Claim expenses for strata fees
Another expense that you can claim as a tax deduction are strata fees. Now, a strata title refers to property investors who own a part of a land or property and have a shared ownership with other property investors of other property.
The strata fee is what you contribute to maintain certain areas of the property. These fees might include garden maintenance, which is NOT eligible to be claimed as a property tax deduction.
However, you can claim deductions such as corporate body fees, which include building insurance costs, building works and repairs and the maintenance of common areas.
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Council rates claims as property tax deductions
Normally you can only make a claim that corresponds to the period your investment property was actually rented, within the same year that you paid the council rates for your investment property.
Let’s look at a quick example of this. If you rented your property for 175 days within a year, the claim you make will only correspond to those 175 days, or 48.6% of the council rates you paid during the year.
Depreciation deductions that apply to property tax
You’ve also got the chance to claim depreciation deductions, whether you’re an Aussie resident or an expat, which apply to investment property tax. Depreciation deductions might include a building depreciation claim for a property that was built after 16th September 1987 for the building’s original costs of construction at a rate of 2.5% for 40 years.
Here’s an example for you. You invested in a property that was constructed in 1991 and it cost $200,000 to build. This means you would be able to claim $5,000 each year in terms of depreciation deductions for 40 years after it was constructed (until 2031).
If the property has been renovated, in terms of a structural improvement, it’s possible to claim on the costs at a rate of 2.5% every year over 40 years after the renovation had been completed. But keep in mind that this applies to structural improvements after 27th February 1992.
Claim depreciation costs related to assets for investors
Now, there are some other depreciation deductions to be aware of, which relates to appliances. You can claim depreciation costs of appliances such as an oven or a washing machine when these appliances decline in financial value.
There are some rules that apply here, though. In a property that was bought before 9th May 2017 your asset or appliance must be completely new or second hand and you must have installed it prior to the 1st July 2017 if you want to claim depreciation costs in this sense.
In all other circumstances, the asset is only eligible for depreciation cost claims if it was completely new.
Costs for upkeep and maintaining a garden
Although you cannot claim new plants as a tax deduction since they are classed as improvements to the property, add value, and should be depreciated in value if you want to claim their costs, it’s also possible to claim the costs of garden maintenance.
Making claims for maintenance and repairs
Your investment property may experience some deterioration over the period, and you might find that maintenance and repairs are required to fix this. The good news? Maintenance expenses and repairs count as an immediate deduction.
Say you need to fix an appliance that has broken and you pay a professional handyman to take care of the work, you can claim these costs immediately as an expat.
What you should watch out for is this: Your replacements don’t count as maintenance and repairs. In other words, if you choose to throw out the dishwasher and get a new one instead of getting the existing one repaired, you cannot claim this as an expense.
Other types of maintenance might include carpet replacements of flooring installations to enhance the property’s value. These types of maintenance count as capital works deductions and, over 40 years, you can claim 2.5% of the costs each year.
Claiming for negative gearing for property investors
Negative gearing refers to a situation where the asset’s expenses (in this case the cost of the investment or rental property) are higher than the amount of income you receive from the asset (which is your income received from rent).
It’s possible to offset these losses against any assessable income and reduce the tax you pay by deducting losses from the taxable income you have.
Eligibility for capital gains discounts helps you pay less tax
A tax on capital gains refers to taxes you must pay when you’ve made a profit from selling a property or asset. However, there is a threshold you can meet to pay much less tax in terms of capital gains.
What makes you eligible for a capital gains discount on your property when you sell it is the length of time you own the property before selling it.
Those property investors who own the property for less than a year will have to pay capital gains taxes in full. But there is such a thing as a capital gains discount, which is 50% of the capital gains tax you would normally pay when you make a profit on an asset you sell.
The key to receiving this discount is to own your investment property for more than a year. This will result in half the capital gains tax being added to your taxable income on your tax return.
Tax deductible legal costs for property investors
In the event you face legal situations with a tenant, such as a tenant eviction, you may face legal fees to settle the situation. This is where you can actually benefit from a property tax deduction as an investor.
Legal costs such as these can be claimed, even as if you return to Australia after being an expat, in addition to costs that are accrued for preparing the documents required to settle legal issues with tenants.
Insurance costs can be claimed as investment property tax deductions
Another cost that you can claim as investment property tax deductions are insurance costs. The first thing you should do is have a look at your statements and records over each quarter and see the costs you can claim.
Alternatively, you might choose to consult your provider for a breakdown of the costs to understand the amounts that are possible to be claimed.
Deducting pest control costs as a property tax deduction
One of the other property tax deductions you can benefit from are pest control costs. If you require a professional pest control service and pay for this service, you can also claim this as an immediate deduction.
Is Stamp Duty Tax deductible on an investment property?
No, stamp duty is not tax deductible on an investment property in Australia. The Australian Taxation Office (ATO) considers stamp duty to be a capital expense, which means that it is not an expense that can be deducted from your rental income. Instead, stamp duty forms part of the cost base of your investment property, which is used to calculate the capital gains tax (CGT) that you will pay when you sell the property.
There is one exception to this rule. In the Australian Capital Territory (ACT), stamp duty is tax deductible on investment properties. This is because the ACT government has a different tax system than the other states and territories in Australia.
If you are considering purchasing an investment property in Australia, it is important to factor in the cost of stamp duty. This is a significant expense, and it can have a big impact on your overall return on investment. You should also be aware that stamp duty is not tax deductible, so you will not be able to claim it as a deduction on your tax return.
Tax deductions for jointly owned investment properties in Australia
Here are some investment property tax deductions for joint ownership in Australia:
- Mortgage interest: You can claim a deduction for the interest you pay on your mortgage, even if you own the property jointly.
- Property taxes: You can claim a deduction for the property taxes you pay on your investment property.
- Depreciation: You can claim a deduction for the depreciation of your investment property. This is the decrease in value of your property over time due to wear and tear.
- Repairs and maintenance: You can claim a deduction for the repairs and maintenance you make to your investment property.
- Utilities: You can claim a deduction for the utilities you pay for your investment property, such as water, electricity, and gas.
- Management fees: If you use a property manager, you can claim a deduction for the management fees you pay.
- Advertising: You can claim a deduction for the advertising you pay to rent out your investment property.
- Legal and accounting fees: You can claim a deduction for the legal and accounting fees you incur in relation to your investment property.
The amount of tax deduction you can claim for each expense will depend on your individual circumstances. It is important to keep good records of all of your expenses so that you can claim the deductions that you are entitled to.
Here are some additional tips for claiming tax deductions for a jointly owned investment property in Australia:
- Make sure that you have a written agreement that clearly defines the ownership interests of each party. This will help to avoid any disputes down the road.
- Keep good records of all of your income and expenses. This includes receipts, invoices, and bank statements.
- Be consistent in the way that you allocate the income and expenses. This will make it easier to track your deductions and to file your taxes correctly.
- Consult with a tax advisor to make sure that you are claiming the deductions that you are entitled to.
By following these tips, you can ensure that you are claiming the maximum amount of tax deductions for your jointly owned investment property in Australia.
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Top tax tips to remember for investment property tax deductions
There are plenty of investment property tax deductions you can make, so remember these tips to make the most of your tax deductions:
- Maintenance repairs can only be claimed if you choose to have them repaired and not replaced.
- Try to have owned the rental property for more than a year before you sell it to receive the capital gains tax discount, and calculate the capital gains you will be charged.
- Pay attention to the amount of time you have rented the property for, which can impact your council rates.
If you’re searching for further facts or information on investment properties as an Australian expat, take a look at odinmortgage.com for the most recent details on property, homeownership, mortgages and mortgage rates.
Frequently Asked Questions
There are also a few other costs that you can deduct from property tax. These costs include the general costs of running your rental investment and investment property maintenance, such as any phone bill or contract costs, the costs of broadband or internet and the costs of electricity.
What’s critical to remember is that these other costs must relate to the rental investment property. In the event your costs exceed the average costs of rental investment management, the Australian taxation office will notice.
To maximise tax deductions from an investment property, you might choose to make claims on the relevant costs you have spent–this might be depreciation claims or a renovation claim, or a repair claim.
As well as selling your investment property at the right time (after one year), you might look at the main residence exemption to help you avoid capital gains tax. The main residence exemption means that you move into the rental investment property and treat it as your main residence, leading to a partial capital gains tax (as opposed to the full amount).
The six-year rule means that you can treat your rental property for up to six years, in circumstances where you are using it to earn an income (such as through rental income). This means you don’t accrue capital gains tax. The rule applies to the times or months that you actually have a tenant.