Investment property owners can access certain tax benefits but also incur additional taxes. Here’s a breakdown of taxes applicable to investment properties. 

Taxes incurred 

There are several taxes and charges incurred when acquiring and owning an investment property: 

Income Tax 
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. 

Council Rates  
The amount of this charge will depend on the location of the investment property and its market value. 

Water Rates 
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 

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 
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.  

Investor deductions: 

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 
Borrowing expenses 
Body corporate fees
Cleaning costs
Council rates
Electricity and gas (not paid by the tenant)
Insurance – for example, building and landlord
Interest on investment loans 
Land tax
Legal expenses
Property manager fees
Repairs and maintenance 
Water charges
Stationery and postage expenses
Tax-related expenses 
Investment-related telephone bills 
Travel and car expenses for rent collection or inspections
Costs incurred for the inspection or maintenance of your property. 

Depreciation Allowances 
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: 

Appliances 
Blinds
Carpets
Furniture
Hot water system. 

Negative Gearing 

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.