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7 tax tips every property investor should know about

By Rich Harvey, CEO, propertybuyer.com.au

Buying Australian property isn't just a fulfilment of the home ownership dream anymore - it's a viable wealth creation method for many. Between positive cashflow property and capital gains, a lot of people have taken hold of Sydney investment property and seen some significant windfalls.

As CoreLogic RP Data reported, the cumulative increase in property values for Sydney between December 2008 and April this year was 80.2 per cent. That's a huge increase, and one which highlights the long term benefits of owning real estate.

But there are also benefits in the shorter term - namely, at tax time. As we approach the end of the financial year, here are some tax tips that will be useful for property investors.

What tax tips should property investors already know?
What tax tips should property investors already know?

1) New clearances for luxury property

The Australian Taxation Office (ATO) has introduced a new requirement that takes effect from July 1st this year. If you are selling property worth more than $2 million, you must get a certificate of clearance before the settlement, which states you don't have to pay withholding tax.

Otherwise, you must pay 10 per cent of the transaction price to the ATO. If luxury property is part of your investment strategy, it'll be important to make sure you're on top of this.

2) Maintenance deductions you can make as a landlord

If you decide to manage your Sydney investment property yourself, there are going to be a number of maintenance costs that become tax-deductible. This includes:

  • Repairs on your property (although if you replace something big, it will instead come under depreciation)
  • Costs of doing the gardening and mowing lawns
  • Cleaning the rental property
  • Alterations and renovations you make to the property

3) Dealing with disputes - and deductions

One of the most unsavoury parts of owning investment property and being a landlord is tenancy disputes. This could be over rent arrears, damage done to the property, or tenants simply not adhering to the agreement that was signed at the beginning of a lease.

These are generally handled at the NSW Civil and Administrative Tribunal, but there is a silver lining to this cloud. Legal costs are also tax-deductible when they apply to investment property. Court proceedings, defending damages claims and evicting tenants are all costs that can be deducted at tax time.

Be wary though, there are certain legal fees that will not be tax-deductible:

  • Solicitor costs when you are buying property or organising your home loan
  • Defending your right to the title of a property
  • Land resumption dispute costs
The NSW Civil and Administrative Tribunal generally handles investment property disputes with tenants.
The NSW Civil and Administrative Tribunal generally handles investment property disputes with tenants.

4) Understand how capital gains tax works

The amount your investment property increases in value by over time is the capital gain. For example, CoreLogic RP Data statistics show that Sydney's median house value went up by 8.38 per cent over the year to April 30, which means some great growth for investors.

But when you sell your home for profit, you will pay tax on your capital gains. However, if you hold onto your Australian property for at least a year before selling, you get a 50 per cent discount on this - yet another benefit to holding onto Sydney investment property for the long term. 

5) Get to know your depreciation schedule

As I mentioned earlier, whiteware in a rental property can be subject to depreciation. This is where investment real estate gathers wear and tear over time, losing its value. This loss can actually be tax-deductible!

This process requires the use of a quantity surveyor, who will draw up your depreciation schedule. It's an important part of setting up any investment property, but it absolutely needs the watchful eyes of a professional. 

6) Make a decision about positive cashflow property

Do you want short term cash flow, or do you want to focus on capital gains?

Do you want short term cash flow, or do you want to focus on capital gains? This is a decision that faces every property investor, and negative gearing has been the focus of a lot of them. Real Estate Institute of Australia (REIA) research from last year indicated that two thirds of investors that get benefits from negative gearing earn under $80,000 per year. This suggests a lot of people that feel they aren't prepared to enter the housing market could actually see some big benefits through this tax structure.

If you're interested in investment property, it's worth looking at the tax benefits of negative gearing and how they could supplement your cash flow. 

7) Use the professionals

As in anything to do with the housing market, it's so important that you get the right advice before you do anything. For tax structuring, you should talk to an accountant or perhaps a financial planner. When you want to understand more about investment properties themselves, a buyers' agent is going to be your secret weapon.

We have a wealth of market knowledge and experience, and understand how to help you find just the kind of real estate you're after. 

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