Property Investors Quick Guide   2011/12

 

Personal income tax      Non-resident income tax

Superannuation      Negative gearing

Medical expenses      Motor vehicle rates

FBT      Depreciation cost limit

ASIC lodgement      Victorian payroll tax

Victorian stamp duty

 

Personal income tax rates

The following income tax rates apply to taxable income.

 

From 1 July 2011 % Tax on this income
$0 - 6,000 0 Nil
$6,001 - 37,000 15 15 cents for each $1 over $6,000
$37,001 - 80,000 30 $4,650 plus 30 cents for each $1 over $37,000
$80,001 - 180,000 37 $17,550 plus 37 cents for each $1 over $80,000
$180,001+ 45 $54,550 plus 45 cents for each $1 over $180,000

 

Flood Levy: Applies generally to individual taxpayers, including non-residents.
 

From 1 July 2011 % Flood levy on this income
$0 - 50,000 0 Nil
$50,001-100,000 0.5 1 cent for each $2 over $50,000
$100,001 + 1.0 $250 plus 1 cent for each $1 over $100,000

 

Low income rebate: $1,500. Full entitlement where income is less than $30,000 and then reducing by 4 cents in every dollar, ceasing where income reaches $67,500. Effective tax-free threshold for low income earners is $16,000.

Medicare levy: 1.5%. 2011 rates: Low income threshold: $18,839 for individuals and $31,789 for families.

Medicare levy surcharge: Additional 1% surcharge may apply to those without adequate hospital insurance. Thresholds $80,000 for individuals and $160,000 for families.

 

 

Victorian land tax (for land held at 31 December 2011)

Your main residence is exempt from land tax and is excluded from the thresholds below.

Land value Rate
Up to $249,999 Nil
$250,000 to $599,999 $275 plus 0.2% for amount over $250,000
$600,000 to $999,999 $975 plus 0.5% for amount over $600,000
$1,000,000 to $1,799,999 $2,975 plus 0.8% for amount over $1,000,000
$1,800,000 to $2,999,999 $9,375 plus 1.3% for amount over $1,800,000
$3,000,000+ $24,975 plus 2.25% for amount over $3,000,000

Note: Higher rates apply to land held by a trust

Victorian stamp duty on transfer of real estate

 

Property value Rate 
$0-$25,000 1.4% of the value
$25,001-$130,000 $350 plus 2.4% of the value over $25,000
$130,001-$960,000 $2,870 plus 6% value over $130,000
$960,001+ 5.5% of the value

Note: Stamp duty concessions are available for first home buyers, subject to eligibility

Negative gearing

A rental property is negatively geared if it is purchased with the assistance of borrowed funds and the net rental income, after expenses, is less than the interest paid.
Negative gearing results in an annual net cash cost to hold the property. You can offset this loss for tax purposes against your other income such as salary, wages or business income.
Investors are often willing to accept a net rental loss due to the expectant capital growth of the underlying asset. You are only ahead if the capital growth over the holding period exceeds the net rental loss over that period.
If the property is held for more than one year you may be able to take advantage of the 50% Capital Gains Tax discount. This means that only 50% of any capital gain is taxable.
If your rental property is negatively geared it may be possible for you to apply for an Income Tax Withholding Variation. This will allow you to access the gearing benefits through a reduction in the withholding tax on your salary throughout the year, rather than when your income tax return is lodged. We can assist with this application.
Contact Simon Dinér to obtain a fixed price quote for our property tax services.

 

Purchasing a property

Cost base: These costs include purchase price, stamp duty, legal fees and initial repairs.  These amounts cannot be claimed as a tax deduction, but form the cost base of the property for Capital Gains Tax purposes.  Any fixtures and fittings included with the purchase can be deducted from the cost base and depreciated.

Borrowing costs: Broker’s fees, loan establishment fees and similar costs.  If the total is less than $100 these costs are claimed outright, otherwise they are claimed over the lesser of 5 years or the term on the loan.

Initial repairs & renovations: These are part of the cost of establishing your rental property and will form part of the cost base, however some items may be able to be depreciated.

Joint ownership

Each person has the same interest in the income and expenses of the property (50/50 for two owners).  For ownership to be in any other split (for example 90% owned by one person and 10% by the other) a separate legal agreement is required at the time the contract is signed – this is known as tenants in common.

There are varying implications for Estate planning.  Jointly held assets transfer automatically to the other owner rather than forming part of your Estate. 

Our specialists can provide specific advice for you.

Private use

Rental expenses can only be claimed while a property is available for rent.  This is a complex area and careful consideration must be given to each situation.

Repairs

Excluding initial repairs, ongoing maintenance items such as painting can be claimed as a deduction.  Improvements such as replacing carpets or curtains will be depreciated.  Renovations and structural improvements such as new kitchens and bathrooms are claimed under the building write-off provisions.

Interest

Interest on funds borrowed to acquire a rental property can be claimed as a deduction (including borrowing to fund purchase costs such as stamp duty) regardless of the security used for the loan.

Where a loan is used for both private and rental purposes the interest will be apportioned. 

Interest on funds borrowed for private use, but secured against an investment property will not be deductible.

Building write-off

Depreciation can be claimed on construction costs of capital works including buildings and structural improvements.  A quantity surveyor’s report is required if actual construction costs are unknown.  Generally the rate of claim is 2.5%.

Depreciation limits

 

$300 Assets under $300 can be written off at the time of purchase
$1,000 Assets costing between $300 and $1,000 can be depreciated using accelerated rates
$1,000+ Assets costing more than $1,000 are depreciated using standard rates provided by the ATO

Capital Gains Tax

Commencement : Charged on gains made on assets acquired after 19 September 1985.
Discount : For individuals, 50% reduction in capital gain for assets held for more than 12 months excluding the date of purchase and date of sale.

Rate of Tax : The gain is added to taxable income and taxed at marginal rates.
Purchase / sale date : Date contract for sale/purchase signed, not date of settlement.

Property Development

This is an area of particular complexities.  Property development may be seen as a business and therefore normal rules may not apply.  Before proceeding, seek our specialist advice for your individual circumstances.

GST

Residential properties: GST is not charged on residential rent.  GST cannot be claimed back on expenses relating to residential properties.  GST may be paid on the purchase of a new residential property.

Commercial/industrial: GST may apply.  For those registered for GST, GST will be added to rent and GST can be claimed on related expenses.  Income threshold is $75,000.

Property development: GST may apply.

 
 
 
 
 
 

Disclaimer: This publication has been prepared on the basis of information available at the date of preparation. The information is general in nature and is not to be taken as substitute for specific professional advice. We recommend that our advice be sought on specific issues prior to acting on transactions affected.