Tax-Smart Property Purchases for Australian Investors

Simply buying a home can be a real brain-bender for the average person … whether it’s your first, second or third time around. Despite the fact that we are constantly told that investing in property is the ’safe’ option, there are several important considerations that property investors need to make if you want to get back in the black with your investment property before you hit ‘vintage’ status. Tax considerations are among the most complex and significant of those; today we check out how property investors can be not only real-estate smart, but tax-wise also.

Depreciation tax breaks

Tax breaks caused by depreciation on the value of an investment property can be significant. There are two types of depreciation that can be claimed.

Furniture and fittings

The depreciation in value for furniture and fittings like stoves, flooring etc is written off over the cost of its useful life, not at the time of purchase.

Construction

Construction is a capital work that is subject to a depreciation tax break also. It doesn’t matter whether you were the one that initiated the construction – the right to claim the depreciation on your tax return passes from owner to owner. The rates that can be claimed vary according to when the property was built, and also according to whether it is a residential or commercial property – it will be either 2.5% or 4%.

If you don’t get a depreciation schedule at the time of purchasing a property, you simply need to engage a quantity surveyor to provide the information. This does come a at cost – but is almost invariably offset by the extra tax deductions.

 Negative gearing versus positive gearing

The basic concept of negative gearing is that you are borrowing to invest. A negatively geared investment property is one where the running costs (mostly constituted by your mortgage repayments) exceed the rental income that you make from the property. The total loss that you make on the property can be a tax deduction on your ordinary income. Investors would usually only consider negatively gearing a property when there is the expectation of high capital gains on selling.

However, it is a rare property that produces both high rental returns AND a good capital gain. In areas where rental returns are good but property prices move slowly, it could be smarter to positively gear your investment property – visit your mortgage broker in Melbourne to discuss this in more details.

Capital gains tax

Capital Gains Tax (CGT) is payable if your capital gains exceed your capital losses in a single income year. It is actually a fairly complex area of tax law, and it is always worth seeing a specialist.

With any investment activity it is important that you have a well thought-out strategy and framework. Give us a call on 1300 700 800 and arrange an appointment with a consultant in order that we can help properly plan and implement your investment strategy.

appreciation · buying a home · homeowners · property investment · tax

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