What do I need to consider when it comes to property investment and tax?


There’s a lot to consider when it comes to an investment property, such as how much you can borrow, the upfront and ongoing costs, who’ll manage the property, and what your legal obligations might be.

On top of that, you’ll want to be across any tax deductions you may be eligible for, not to mention when tax might be payable.

Below are some pointers regarding some of the potential tax advantages and disadvantages, and keep in mind it may be a good idea to seek tax advice that’s relevant to your specific situation.

Expenses you can typically claim as tax deductions

When you own an investment property, you can often claim a tax deduction on a variety of expenses related to the property during the time that it’s rented out, or available for rent.

Such items include but aren’t limited to things like:

  • advertising costs 
  • property management fees
  • borrowing expenses, including loan interest charges and fees
  • council rates, land tax and strata fees
  • building depreciation and the loss of value over time in fittings and fixtures like ovens, dishwashers, carpets and hot water systems
  • repairs, maintenance, pest control, cleaning and gardening costs
  • building and landlord insurance
  • phone costs and stationary
  • accounting and bookkeeping fees.

Note, travel undertaken to inspect the property is generally no longer a claimable expense in Australia.

How negative gearing can reduce what you pay in income tax

If your property is negatively geared (which means the interest and other costs you incur are more than the income your investment property produces), the loss can reduce the amount of tax you pay on your earnings (i.e. your salary) at tax time.

To give you an example, say you earn a salary of $70,000 and a rental income of $20,000 over a 12-month period. If your net rental property expenses are $35,000, your rental property loss will equal $15,000 for the year, which means you’ll only pay tax on $55,000 of your salary.

If your property is positively geared on the other hand—meaning the rent you’re generating is more than the cost of owning the property—you’ll have to pay tax on the profit the property generates.

When capital gains tax is payable

If you ever choose to sell your investment property, any profit you make will be subject to capital gains tax and treated as income on top of any regular income you earn in the same financial year.

The good news is, the price you paid for the property (including buying and selling costs, like stamp duty, legal fees and the real estate agent’s commission) will reduce the amount considered as ‘profit’.

And, if you’ve owned the property for at least 12 months, 50% (rather than 100%) of the profit you make will be subject to capital gains tax.

Other tips to ensure tax entitlements are received

From the get go, keep any relevant documentation so you’re able to claim everything you’re entitled to, and ensure you declare all your rental-related income in your tax return each year.

You'll also need to keep records of the date and costs of buying the property for capital-gains-tax purposes, and anything regarding significant changes that may take place, such as repairs, improvements or should you decide to subdivide and sell part or all of the property down the track.

Remember that keeping these records will help to ensure you do not pay more tax than you need to.

Need further assistance?

While there are potential benefits to investing in property, there are things to keep in mind, including the possibility property values could decline or you may have to cover any rental shortfall and periods between tenants.

In the meantime, it may be worth speaking to your adviser. And, if you don’t have one, you can call us on 131 267 or use our find an adviser search function.

You can also request a call back from an AMP Bank home loan representative via our online form if you’d like details about AMP Bank’s range of home loans.

If you’d like additional pointers, check out the following pages:

Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

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