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Investing in property comes with its own set of financial responsibilities, and understanding the various taxes associated with investment properties is crucial for a successful and financially sound journey. At Attune Advisory we believe in empowering you with knowledge to help you make informed decisions on your own, alongside offering you tailored advice when you need it.
With that in mind we thought we’d explore the four types of taxes relating to investment property that you need to be well-versed in: stamp duty tax, land tax, income tax, and capital gains tax.
What is Stamp Duty? Stamp duty, also known as transfer duty, is a tax imposed when the ownership of an investment property is transferred from the seller to the buyer. Unfortunately, the Australian Tax Office (ATO) does not permit claiming stamp duty as a tax deduction.
Calculating Stamp Duty: A Case Study Let's consider Jenna, who purchases a $330,000 investment property in New South Wales. The stamp duty scale is tiered based on property value. In Jenna's case, she calculates her stamp duty to be $10,185. However, being a first-time buyer, she qualifies fora total stamp duty exemption under the First Home Buyer Assistance Scheme.
Factors Influencing Stamp Duty:
It's important to note that stamp duty is applicable to all transfers of title, including those between family members or ownership structures.
Unlike stamp duty, land taxis an ongoing annual payment based on the unimproved value of the land you own. The unimproved value excludes buildings, paths, landscaping, and fences. There are some extras to consider when it comes to land tax, which are usually well documented on your state’s government website – here’s the link for NSW: https://www.revenue.nsw.gov.au/taxes-duties-levies-royalties/land-tax
Calculating Land Tax: To start with, we suggest discussing your position with the Attune team to ensure tax calculations (of any kind) are calculated correctly. Having said that, let’s continue with New South Wales as an example of location for this purpose. The above website offers a tool to help you start the calculation process, which can be found here: https://www.apps09.revenue.nsw.gov.au/erevenue/calculators/landtax.php
Important Note: The Northern Territory is the exception, as it does not require property investors to pay land tax.
Income generated from your investment property is subject to income tax. Combining this with your other sources of income, such as salary and other investments, is essential for accurate assessment in your annual tax return. And, once again, we advise you speak with your Attune team member for the right guidance so you can be completely confident in your tax position.
Tax Deductions for Investors: Investors can claim various deductions, including immediately deductible rental expenses and those claimable over several years, such as depreciation (again, we’ll be able to help with your deductions and their eligibility).
Key Consideration: You cannot claim tax deductions for expenses like stamp duty, loan repayments, and costs paid by your tenant.
If you plan to sell your investment property, you may be liable to pay capital gains tax on the profit made from the sale.
Exemptions and Concessions: Fortunately, the Australian Tax Office provides exemptions and concessions, such as the MainResidence (MR) exemption, the 6-year rule, the six-month rule, and the 50% CGT discount. Each of these rules has their own criteria to be met that we can walk you through when the time comes to consider selling an investment property.
Paying tax on investment property is inevitable, but being well-informed about these tax types allows you to account for them and potentially take advantage of exemptions and deductions. Seeking tailored, professional advice from the team at Attune Advisory can result in significant savings or at the very least, accuracy in accounting when it comes to your liability and tax position. Whether you're a first-time buyer or an experienced investor, understanding the tax landscape is crucial for financial success, which is ultimately the reason we invest in property at all!
While every effort has been made to ensure accuracy in the above at the time of writing, this guide is intended as an overview, not exhaustive advice. As usual with any tax matter, we strongly suggest you seek professional advice for legal, tax, or investment issues specific to your circumstances from the Attune Advisory team.
If you’d like to discuss your property investment position or are planning for the future with property investment, contact us today for strategic and tailored advice that fits your needs. Call the team on 1800 866 113 or send us an email to start the conversation – you won’t regret it!
