Whether you are considering buying an investment property or already own one it is very beneficial to understand the tax impications of owning an investment property. 5 key tax principles are presented below.
Keep adequate records - When you obtain a rental property, it's important to start keeping records straight away. This is so you can claim everything you're entitled to. You also need records of the date and costs of buying the property so any capital gain (or capital loss) can be accurately calculated when you dispose of the property.
Negatively gearing - If your property is negatively geared – that is, you borrowed money to buy the property and your net rental income after other expenses is less than the interest on the loan – you may be able to claim the full amount of rental expenses against your other income, such as salary and wages.
Quantity Surveyor - If you purchased the property and do not have a record of the construction costs (for example, where the vendor did not provide them) you will need to obtain this information from an appropriately qualified person such a quantity surveyor. Quantity surveyor reports can also include a schedule of depreciable assets (capital allowances). You can claim a separate deduction for the decline in value of depreciable assets.
Capital works deductions - Certain kinds of construction expenditure can be deducted. In the case of residential rental properties, the deductions would generally be spread over a period of 25 or 40 years.. The amount of the Deduction amount you can claim depends on the type of construction and the date construction started. For example, if construction commenced after 15 September 1987 the deduction is typically 2.5% per annum.
Capital gain/loss - You may make a capital gain or capital loss when you sell (or otherwise cease to own) a rental property. You pay capital gains tax on your capital gains
For further assistance with the preparation of a Rental Property tax return (or any other tax return), contact us to arrange a meeting with Duncan Warnock CPA from the Warnock Accounting Maribyrnong office.