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Investment Property Done Properly

When it comes to investment property making the right choice on the basis of investment fundamentals is the most important factor but understanding the tax consequences of your selection is also critically important. You will have tax obligations to comply with, deductions to claim and records to keep.

We have summarised some of the key issues for you below:

BUYING A PROPERTY

TIPS

  • Make sure that your decision is primarily based on the fundamentals of the investment rather than any tax benefits you may derive. The rewards of good investment performance will usually outweigh any taxation benefits
  • Seek advice from your financial adviser to ensure that acquiring an investment property is appropriate after giving due consideration to your risk profile, debt position, certainty of income, cashflows, your short and long term financial objectives
  • Undertake an after-tax cash flow analysis of any proposed investment so you understand exactly the impact it will have on your disposable income.

RECORD KEEPING

  • Ensure your record keeping is practical and in order. It can be as simple as using an excel spreadsheet to track everything or using professional software to do the same
  • Keep records of every transaction for the duration of the period you own the property, including legal fees, stamp duty and initial repairs. Whilst you can’t claim an immediate deduction for these they will reduce the tax you pay when it comes to selling the property as they form part of the cost base of the asset
  • Examples of the type of records you need to keep are: Contract of purchase, Conveyancing documents including settlement statement, Loan documents, Costs to purchase the property, Borrowing expenses, Title Deed

 

OWNING A PROPERTY

TIPS

  • You can claim an immediate tax deduction for expenses such as loan interest, rates and taxes, property management fees, insurance, body corporate fees and repairs and maintenance
  • Deductions for capital works (property improvements, renovations etc) and borrowing costs can also be claimed over several years
  • Come tax time make sure you include all your rental income and only claim deductions for the period that the property was actually rented
  • Keep scanned copies of your receipts for ease of access and filing and do away with the need to keep boxes and boxes of original documents, receipts and invoices

RECORDS TO KEEP

  • Agents statements
  • Proof of rental income receipts
  • Receipts and invoices supporting claims for all your expenses
  • Loan documents & statements

 

SELLING A PROPERTY

TIPS

  • You may have to pay capital gains tax, even if you are transferring the property into another name (a capital gain/loss is the difference between your cost base and your net sales proceeds)
  • If you are an Australian resident and have owned the property for more than 12 months you will usually be entitled to a 50% discount on the capital gain
  • If you lived in the property as your main residence for part of the ownership period, then you may also be eligible for a partial CGT exemption

RECORDS TO KEEP

  • Contract of sale
  • Conveyancing documents including settlement statement
  • Details of Capital improvements
  • Agents commission
  • Details of any period/s you lived in the property

The above is not an exhaustive list of all the issues that need to be considered when buying, owning or selling an investment property. That is why it is extremely important to be thorough at each stage and seek advice at the appropriate times.

Published on April 2, 2018 by Progue

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