There are some implications for income tax, capital gains tax, goods and services tax in the property including building or renovating for profit, dealing in land, or using a property for the business.
Below are the following types of investment property:
- Your home
If you rent out part or all of the home place as the way to produce income, you can claim the related expenses when include the income in the tax return, sell the rental property in making a capital gain or loss with capital gains tax (CGT) payment after 19 September 1985. Otherwise your home is generally exempt from tax.
- Inheriting property
Capital gain tax may apply when you inherit a dwelling or other property after CGT started on 20 September 1985 and later sell or dispose of it, and when the deceased person’s legal personal representative sells the property as part of winding up the estate.
- Residential rental properties
Keep the complete and continuous records of investing in or renting out the property including the expenses that can be claimed as deductions, and declaration for the rental-related income in the tax return.
- Land – vacant land and subdividing
Being considered as the capital asset or the subject of the business or commercial transaction, the land and the proceeds bring in the tax treatment. Vacant land is usually considered a capital asset to CGT while land sale proceeds of the business activity may be considered ordinary income and subject to goods and services tax (GST).
- Property development, building and renovating
Renovating over one property in working purposes as the personal property investor, engaged in the business activity of property renovations, or carrying on a business of renovating properties. Since 1 July 2018, the certain purchasers of new residential premises or potential residential land are required to provide and pay the amount of the contract price to Australian Taxation Office (ATO).
- Property used in running a business
Any property used for business including office and home, you should include any rental income in the tax return, claim income tax deduction for some property expenses and liable for capital gains tax on any capital gain in selling the property. There is GST obligations and entitlement in purchasing, selling, leasing or renting commercial premises.
Claiming deductions for the expenses is directly related to earning the income. Investing on the rental property is one of the expenses relating to the investment, which can be tax deductible. Holding investments in Australia or overseas, Australian residents are taxed on the worldwide income.
Not many property investors claim all the tax deductions they should in the battle of the falling prices and rising interest rates. Management, maintenance and interest costs including advertising for tenants, building and contents insurance can be claimed immediately. BMT Tax Depreciation CEO Bradley Beer insists that 70 to 80 per cent of investors are not maximising their deductions while the most commonly missed tax claims including fixtures, fittings and building costs of an investment property. The property tax ranges from a few hundred dollars to hundreds of thousands by different states. The accompanying landlord or vacation rental license fees are deductable if the state requires rental licensing.
The second-biggest tax claim is the borrowing expenses, depreciation and capital works spending deductions that may hold for years. The deduction takes over five years or the term of the loan with total borrowing expenses over $100.
Depreciation reports cover nearly every item including rubbish bins and printer cost around $700. Air-conditioners, carpets and floating timber floors are the biggest average annual depreciation claims according to BMT’s analysis of tens of thousands of depreciation reports. The construction cost can be written down by 2.5% per year. For example, the capital work deduction can be $6250 each year for the $250,000 building.
A tougher tax time comes towards 2.1 million real estate Australian investors. The latest ATO rule disallows travel-related tax deductions for real estate investors and depreciation deduction for second-hand property items.
Depreciation has always been a complex issue and it’s worthwhile having a tax agent to find the proper claim right. Book a free consultation with us today to get some advice! http://calendly.com/taxideas