March 31, 2021
What outgoings will I have to pay on my investment property?
Investment property owners can access certain tax benefits but also incur additional taxes. Here’s a breakdown of taxes applicable to investment properties.
There are several taxes and charges incurred when acquiring and owning an investment property:
The investment property owner will be required to pay tax on income (rent) received from leasing the property. This may be offset by interest repayments on the owner’s loan, as well as other deductions.
Capital Gains Tax (CGT)
Capital gains tax is payable on any profit made from your investment property when it is sold. The applicable rate of CGT (Capital Gains Tax) is the same as the income tax rate. However, if the owner has held the property for more than 12 months, they gain a 50 per cent discount on the capital gain.
The amount of this charge will depend on the location of the investment property and its market value.
At the beginning of a tenancy, a property owner and tenant can reach an agreement regarding responsibility for water supply and usage. The agreement must be specifically included as a term in the written residential tenancy agreement (lease agreement) – Section 73(2) of the Residential Tenancies Act 1995.
From 1 March 2014 onward, the tenant is responsible for paying all water supply and usage charges on separately metered properties. For lease agreements dated prior to 1 March 2014, the tenant is responsible for water use over 136 kilolitres per year.
Strata Fees are commonly known as strata levies or contributions and only apply to homes with a community or strata title. These are put towards the property group’s ongoing running costs, maintenance and insurance. The maintenance works are specifically for communal areas such as driveways, pool, building exteriors, etc., not the inside of your property.
The frequency and fee value are decided annually at the AGM. This, of course, varies between states and depends on the strata laws.
Land tax is imposed by all state and territory governments, except the Northern Territory. Land tax is calculated based on the combined unimproved value of the land owned and is calculated on what your land would be worth if it were vacant. It does not include existing buildings on the property. Land tax is payable on all property you own, except your principal place of residence. The amount of this annual payment varies by location.
Property investors have three expense categories they can deduct from their tax:
Acquisition and Maintenance Costs
You can offset expenses relating to your investment property against rental income; whether it was negatively geared or not.
Some expenses which can be claimed are:
The cost of advertising to find a tenant
Bank fees and charges on loan accounts
Body corporate fees
Electricity and gas (not paid by the tenant)
Insurance – for example, building and landlord
Interest on investment loans
Property manager fees
Repairs and maintenance
Stationery and postage expenses
Investment-related telephone bills
Travel and car expenses for rent collection or inspections
Costs incurred for the inspection or maintenance of your property.
All property owners who own an investment property are entitled to claim depreciation on newly purchased items. You can deduct depreciation on fixtures and fittings in the property, including:
Hot water system.
Negative gearing occurs when the annual cost of your investment is greater than the return you received. Put simply, when the ongoing costs such as maintenance and loan repayments are greater than rental income, then the property is ‘negatively geared.’ If you are negatively geared, the government allows the loss on your property to be deducted from your gross income, creating a reduction in your tax liability.
*This article does not constitute professional financial advice. We recommend you contact your financial advisor to confirm your personal tax situation.