Top 5 Tax Guidelines for Investors

Mi Casa recently hosted a Landlord Information Session that featured a presentation by Nexia’s Dean Birch discussing the tax implications on investment properties. For those who missed the session, we are pleased to share 5 key insights we took away from the presentation that may help property investors be more informed about tax-related issues that they should be aware of.

Rental Property Deductions

Income from rental property is taxable, but some expenses are tax deductible, can be written off over time or can be added to the cost base of the rental property. Expenses can only be claimed during the time your property was rented or available for rent.

Expenses accrued from property management services can lower your tax bill since they are tax deductible. To do this, however, all invoices and statements of the services must be kept as evidence.

It is beneficial to know what can be deducted from your tax bill, but it’s also important to know what conditions must be met in order to claim these deductions. For example, travel expenses can only be deducted for a residential property that is being used completely or partially for commercial purposes (including a ‘business of property’; this does not include property investment).

Second-hand depreciating assets

It may be surprising to know that as of 1 July 2017, deductions cannot be claimed for assets purchased with a property that have already depreciated in value. Deductions can only be claimed for assets that were obtained new since purchase. This applies to property investors as well. Please note that ATO audits are increasing, so be sure to keep a sufficient paper trail of purchases and improvements.

Changes for Non-Residents

Your main residence, i.e. your home, will usually be exempt from capital gains tax (CGT). A capital gain (or loss) is generally calculated by the difference between the purchase and other costs of a capital asset (like real estate) and what is received by you when you dispose of the asset. However, if you are a property investor who is a foreign resident at the time of disposing your real estate property, you will be denied access to the main residence exemption. In order for a property to be exempt from CGT, you generally need to live in it as your main residence for at least 6 months. This will then ensure this is your main residence for a 6 year term, after which you will need to return to reside in your chosen residence if you wish to continue treating it as your main residence.

Regarding the amount that must be withheld by property buyers from the purchase price during transactions, it has risen from 10% to 12.5%. This does not apply to transactions for properties with a market value of less than $750,000 (unless the vendor provides a clearance certificate to the buyer showing they are a resident of Australia for tax purposes).

Foreign owners should also be aware that a vacancy levy may be imposed on residential properties that are not rented out or occupied for more than six months a year. This annual vacancy fee applies to foreign investors who make a foreign investment application for residential property after 7.30pm Australian Eastern Standard Time on 9 May 2017 and to foreign investors who purchase a dwelling with a New Dwelling Exemption Certificate that was applied for by a developer after 7.30pm Australian Eastern Standard Time on 9 May 2017.

Distinction between New & Old GST

The main change for residential property GST that was made effective 29 March 2018 is for the purchaser with regards to the process of paying it. The purchaser now pays GST directly to the ATO instead of to the seller. The main reason for this is so that the seller cannot use a phoenix arrangement' to get out of paying the GST on to the ATO.

How much GST is paid depends on whether a margin scheme applies. The GST payable by the purchaser when no margin scheme applies is 1/11th of the contract price. If a margin scheme applies, the GST payable is 7% of the contract price.

Transfer Duty

On top of the usual amount of duty payable on property purchases, i.e. stamp duty (the current top rate being 5.15%), a 7% duty (transfer duty) will apply to purchases made by foreign residents from 1 January 2019. If you are unsure whether you count as a foreign resident, ask your accountant for advice.

We hope this gives you a brief insight into some aspects to take into consideration when it comes to reviewing the financial viability of your investment property. Should you require further clarification or review then please contact the knowledgeable team at Nexia on 08 9463 2463.

And if you are looking to start your property investment journey and are seeking a dedicated and experiences team to manage your property, then contact the team at Mi Casa Property Boutique for more information and a FREE market appraisal. Contact us HERE.

We offer an all inclusive 11% property management fee, with no hidden costs.

See more great information here on the  Nexia Perth website

This information is current at time of publishing and is not tax advice, should an individual be seeking final tax information that they need to contact a registered tax agent.

Please speak to Adam Smith or Dean Birch at Nexia on 08 9463 2463. Or to email Adam: adam.smith@nexiaperth.com.au