Taxes…they’re not all bad!

We all pay taxes and in most parts don't like doing it.

When it comes to owning an investment property, it’s important to know where you stand when it comes to tax and what deductions you might be eligible for.

Buying a property for your investment portfolio is only half that battle, managing the property and all that comes with it is the other half.

Investors need to be properly advised about what tax deductions they can claim on a rental property and ways in which they can offset potential capital gains tax.

Here are some deductions to consider:

Generally you can claim a wide range of running and management expenses against your investment property’s income, including:

• Real estate management fees and commissions
• Council and water rates
• Advertising for tenants
• Insurance
• Interest on your investment loan
• Body corporate fees and charges
• Quantity surveyor’s fees
• Repairs and maintenance
• Reasonable travel expenses to inspect your property
• Depreciation on assets

The important thing though is to get professional advice on what you can and can’t claim, not only to ensure you’re compliant in your claim, but also to make sure you get the most out of the claim.

Depreciation on assets

All properties contain some depreciable assets that are depreciated over time at varying rates.

These items include things such as carpet, cook tops, ovens, air conditioners, blinds or curtains, dishwashers, dryers and hot water systems.

They are depreciated at a higher (faster) rate than that applied to the building (capital) depreciation.

Capital Depreciation is based on the historical construction costs of the property, which may include surveying, engineering, architectural and building costs, and the rate of depreciation is fixed for either 25 or 40 years.

Understanding capital gains tax

In Australia, Capital Gains Tax (CGT) is applied to the profit made on the sale of investment properties; it does not apply to a property in which you actually live.

CGT now only applies to 50 per cent of the profit made – as long as the property is held for more than one year.

Tax credits are accrued for all maintenance, council and water rate expenditure on investment property and can be offset against CGT or other taxable sources of income.

With the right advice you can ensure you don't pay too much CGT if selling an investment property.