Tax Implications for Rental Property Owner

Managing the rental property can be complex for individuals or businesses.
From the taxation point of view if you have multiple rental properties it can be even complex. If you have maintained the complete records of income and expenses with all receipts you will save a lot of time and effort at the end of the financial year.

What are the expenses that can be claimed as deductions under
rental property?

Common expenses that may be claimed include: 

  •  Repairs and maintenance 
  • Council rates, Body corporate and land tax 
  • Advertising for tenants 
  • Insurance (building, contents, landlord and public liability) 
  • Interest On Loan
  • Borrowing expenses ( Over 5 years) 
  • Depreciation on building and fixtures in some cases 
  • Water supple charge and electricity in some cases 
  • Property agent commission management fees 
  • Pest control 
  • Cleaning and rubbish removal

What are the expenses that cannot be claimed?

  • Replacements which are not repairs 
  • Stamp duty in NSW 
  • Legal fees on settlement 
  • Travelling expenses 
  • Mortgage principal payment amount

What is negative gearing and how does it work?

Negative gearing occurs when the annual cost of your rental or investment property is greater than the return which you are receiving. This means when the ongoing costs such as maintenance and loan repayments are greater than rental income, then the property is negatively geared. Therefore, the ATO allows the loss on your property to be deducted from your gross taxable income, creating a reduction in your tax liability of the financial year resulting in higher tax refund or lower tax payable as the case may be. On the other hand if your rental income is more than the expenses it results in a positively geared property wherein the tax payer pays tax on the profit made from the investment property.

Capital gains tax (CGT) is the tax you pay on a capital gain. It is not a separate tax, just part of your income tax. Selling assets such as investment real estate, shares or managed fund investments is the most common way to make a capital gain (or a capital loss). Capital gains may get the 50 % discount if the asset is held for more then 1 year.  The net gain is then added to your ordinary assessable income and tax is calculated based on your income slab. Hence tax payers earning no other income or low taxable income will pay less capital gains tax then tax payers on high taxable income from other sources.

Is there capital gains tax on Investment property If that is the only property owned by the tax payer?

If the tax payer owns only one real estate then he may get an exemption
from paying capital gains tax provided he satisfies the primary residence
test and is sold within 6 years of purchase. Other ATO conditions may effect hence please take expert advice before finalising your tax return. If sold after 6 year then tax payer maybe able to proportion the gain.

For up to date information about tax implication for rental properties follow
official ATO website.  
https://www.ato.gov.au/General/property/residential-rental-properties/ 

Remember, for expert tax advice on your rental or investment property, speak to a registered tax agent Accurate Business & Accounting Services.

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