Entering the property market as an investor you must know which set of taxes to pay. Property Investors do get the luxury of certain tax benefits. However, on the flip side, property investors incur additional taxes too.
Below Mentioned is a guideline of taxes related to property investments.
- Income Tax: it is the tax incurred on the income from the investment property. (Rent earned)
- Capital Gains Tax (CGT): It is the tax required to be paid on any profit made on selling the investment property. However, there is one exception in case of holding the property for more than 12 months, you can get 50% discount on the capital gains made on the sale of an investment property.
- Land Tax: is payable on all the property that you own, exception being the one which you are currently residing.
- Borrowing expenses: Comprises of Mortgage fees and Lender’s Insurance.
- Strata Fees: Only applicable to the property within a Strata block.
- Council Rates &Water: paid to the local government for its investment & expenditure on things like rubbish collection, parks, public facility, community services etc.
When doing feasibility studies for your property investment you should then factor in all the expenses. It is important to have a strong gripping of your finances before making a huge commitment therefore always take into consideration the price of your purchase and all other expenses, taxes and any other add on’s.
Therefore, it is advisable to take professional advice, in spite of doing all your calculations. Also keeping track of constantly changing laws can go out of hand and therefore it is better suggested to seek professional help.
Deductions – Good news is that are 3 types of deductions for an Investor they are categorised as:
- Acquisition and Maintenance costs: these can be claimed back against the taxable rental income such as-Bank fees & charges on your loan accounts, Body corporate fees, Council rates, Cleaning costs, Building or Landlord Insurance, Land tax, interest on your investment loans.
- Depreciation Allowances: All landlords who own an investment property are eligible to claim depreciation on newly purchased items such as: Appliances, Blinds, Carpets, Furniture etc.
- Negative Gearing: It occurs when the cost of owning a rental property outweighs the income it generates each year. In simple terms, when the ongoing costs such as maintenance and loan repayments are greater than rental income, then the property is negatively geared. If you are negatively geared, the government allows the loss on your property to be deducted from your gross income, creating a reduction in your tax liability.