Are you tax-smart when investing in property?

Being tax-smart when investing in property

Being tax-smart when investing in property means more than making the right property choices. If you use your property to earn income at any time, you will have tax obligation and entitlements.

Here are some tips to help you get it right at each stage of the journey.

Getting record keeping right makes tax time easy

Whether you use a tax agent to prepare your tax return or do it yourself, you need to keep proper records over the period you own the property.

Keep the right records at each stage of your journey to ensure you are able to claim everything you're entitled to.

Buying

Contract of purchase
Conveyancing documents
Loan documents
Costs to buy the property
Borrowing expenses

Owning

Proof of earned rental income
All your expenses
Periods of private use by you or your friends
Periods the property is used as your main residence
Loan documents if you refinance your property
Efforts to rent the property out
Capital improvements

Selling

Contract of sale
Conveyancing documents
Sale of property fees
Calculation of capital gain/loss

Record keeping tips

Set up an easy-to-use record-keeping system as your first priority. This can be as simple as a spreadsheet or you can use professional software.

Keep records of every transaction over the period you own the property. This includes contracts of purchase and sale, as well as conveyancing and loan documentation.

Scan copies of your receipts to make it easier to store and access them.

Remember – keeping proof of all your income, expenses and efforts to rent out your property means you can claim everything you are entitled to.

Simple steps when preparing your return

Rental property owners should remember three simple steps when preparing their return.

Include all the income you receive – this includes income from short term rental arrangements (eg a holiday home), sharing part of your home, and other rental-related income such as insurance payouts and rental bond money you retain.
Get your expenses right
- Eligibility: Claim only for expenses incurred for the period your property was rented or when you were actively trying to rent the property on commercial terms.
- Timing: Some expenses must be claimed over a number of years.
- Apportionment: Apportion your claim where your property was rented out for part of the year or only part of your property was rented out, where you used the property yourself or rented it below market rates. You must also apportion in line with your ownership interest.
Keep records to prove it all – you should keep records of both income and expenses relating to your rental property, as well as purchase and sale records.

Selling a property

If you sell an investment property or your main residence that you have rented out, remember:

you may have to pay capital gains tax, even if you transfer the property into someone else’s name
a capital gain is the difference between your cost base (costs of ownership) and your capital proceeds (what you receive when you sell the property or the market value when you transfer the property)
if your costs of ownership are greater than your capital proceeds, a capital loss should be included in your return and this amount may reduce future capital gains
if you have claimed a deduction for capital works or depreciation in any income year, your cost base should not include these amounts
if you own the property for more than 12 months, you will be entitled to a 50% discount on tax on the capital gain.

For more information about how tax applies to property investing, refer to:

Source : Australian Taxation Office

Disclaimer

This article is a general guide and does not represent a specific tax situation or provision. Also, this is not our professional advice on specific circumstances. Please call us at 13-000-RBIZZ or write to us at team@rbizz.com.au for our professional assistance.

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