Property Investors Quick Guide 2012/13
The following income tax rates apply to taxable income.
Flood Levy: No longer applies from 1 July
Your main residence is exempt from land tax and is excluded from the thresholds below.
Note: Higher rates apply to land held by a trust
Note: Stamp duty concessions are available for first home buyers, subject to eligibility
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.
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.
Each person has the same interest in the income and expenses of
the property (e.g. 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 and the title would indicate 'tenants in common'
– defining the specific interests.
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.
Excluding initial repairs, ongoing maintenance items such as painting can be claimed as a tax 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 on funds borrowed to acquire a rental property can be claimed as a tax 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 must be apportioned.
Interest on funds borrowed for private use, but secured against an investment property will not be tax deductible..
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% a year of the costs incurred.
Commencement : Charged on gains made on assets acquired after 19 September 1985.
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.
This is a
complex area. Careful consideration must be given before deciding to
sub-divide or develop existing properties. There may be income tax,
GST, stamp duty and local planning implications, just to name a few.
Before proceeding we recommend seeking our specialist advice
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.
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.