4 taxes property investors need to be aware of
Tax is one of life certainties, and like every business, investing in property comes with tax obligations.
Understanding these types of taxes will ensure that you not only account for them, but potentially you can take advantage of the various exemptions and deductions they offer.
Here are the four types of tax you will need to factor into your property investment.
- Transfer (stamp) duty
Formally referred to as stamp duty, transfer duty, is the upfront cost associated with buying a property. It is a levy on all properties by the NSW Government based on the property’s sale price or its current market value, whichever is higher.
Each year the threshold amounts for standard transfer duty and premium duty rates are adjusted in line with movements in the Sydney Consumer Price Index (CPI). Generally, you must pay stamp duty within three months of signing a contract, but there are some exemptions.
Visit the Transfer Duty page on the NSW Government Revenue website to find out more and use its online calculator to estimate how much you are likely to pay.
Transfer duty fees are classed as a capital cost, so are not a tax-deductible expense when you purchase the property. However, as they are a part of the cost of buying the property, there may be opportunities to claim back the transfer duty fees if you sell the property for a profit.
Speak to a financial specialist to find out more.
- Capital Gains tax (CGT)
CGT is the tax you pay on the difference between what the property cost you to obtain and improve it and the amount you receive when you dispose of it.
Generally, if your house is your main residence, you will not have to pay CGT; it only comes into play for investment properties.
Read our guide to capital gains tax here.
- Land Tax (for unimproved land only)
As the name suggests, this investment property tax is payable on the unimproved value of the land that investors own.
The unimproved value of the land is the value of the land without taking into account any improvements on the land such as:
- buildings
- landscaping
- paths
- fences
In NSW, land tax is calculated on the total value of all your taxable land above the land tax threshold, not on each individual property. If the combined value of your land does not exceed the threshold, no land tax is payable. Your liability for each year is based on the value of all land you owned on 31 December in the previous year. Any changes to the land you own this year will only affect how much you pay next year.
Visit the Land Tax page on the NSW Government Revenue website to find out more and use its online calculator to estimate how much you are likely to pay.
- Income Tax
Any income you receive you have to pay tax on, and this includes any income you receive from your investment property, such as rent.
If you are earning from other sources, such as a wage from regular employment, the rental income is combined with your personal income and assessed together each financial year.
Even if your investment property runs at a loss (i.e. your expenses are more than your income), it must be declared.
There are also some tax deductions you can claim such as depreciation, interest on your loan, any utilities and council tax, and property management costs, such as using an agent.
Visit the Rental Expenses to Claim page on the ATO website for more details. However, to ensure your tax return is filed correctly, we strongly recommend you speak to a specialist – getting the correct tax advice could save you thousands of dollars.
Get in touch with us now to learn more about our property management services; as well as saving you time with managing your investment property, such as finding a tenant and managing your maintenance, we also manage and correctly record the financial outgoings and rental income paperwork. We send a copy of this to you at the end of each month, and also a final one at year-end to give to your accountant.
As well as being a tax-deductible expense, the financial records we provide may also help reduce the time spent preparing your tax return.
Drop into the Cardiff office or give us a call on 02 4956 9777. Or send us an email at mail@newcastlepropertymanagement.com.au – we’ve helped many people realise their financial dreams through property and we’re keen to help you.
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