10 Tax Tips for the Astute Property Investor

10 Tax Tips for the Astute Property Investor


Capital Gains Tax (CGT) – Tax Tip 1:

The purchase and sale of investment properties is subject to Capital Gains Tax. This tax is levied on the difference between the purchase cost(s) and the sale cost(s). There is no set CGT tax rate as it is dependant on your taxable income at the time of disposal of the asset. The tax rates may vary between 0% – 46.50%.

If the property has been purchased by an individual, trust or partnership, it is able to reduce the capital gain by 50% provided the asset has been retained for a period exceeding 12 months. This means that effectively the tax rates are halved.


Depreciation – Tax Tip 2:

When claiming expenses associated with rental properties, you should never overlook claiming your depreciation expense entitlements. This deduction involves claiming an expense for the deterioration of the fixtures and fittings each year in the property from carpets to cupboards.

Furthermore, if the residential property was constructed after 18/07/1985 you will also be able to claim depreciation of the building.

These non-cash expenses may add 000’s to your refund.


Companies – Tax Tip 3:

Broadly speaking companies are not the desired investment vehicle for buying and selling properties. This is due to the fact that they do not receive the Capital Gains Tax 50% Discount on profits from the sale.


Discretionary Trusts – Tax Tip 4:

It is generally believed that the best and most tax effective investment vehicle for property investment that generate profits, is a Discretionary Trust. This is due to the fact that profits can be distributed at the trustee’s discretion to beneficiaries including family members and associated companies. Furthermore, asset protection advantages may also be attractive to taxpayers who may be exposed to litigation. Discretionary Trusts may not be ideal if your investment property generates a loss or is negatively geared.


Land Tax – Tax Tip 5:

Properties owned by you other than your principle place of residence with land value exceeding state land tax thresholds will attract Land Tax from the state respective government. By way of example, the current NSW Land Tax threshold is $629,000.


Land Tax – Tax Tip 5 (Continued):


If your land value exceeds the threshold you may be entitled to an exemption depending on the type and use of the land.


Self-Managed Superannuation Funds – Tax Tip 6:

If you are unhappy with your current superannuation performance, you may consider setting up a SMSF to assist in the purchase of an investment property. By combining a unit trust or security trust and SMSF, you may be able to fund for your retirement by direct property investment.


Finance/Loan – Tax Tip 7:

After taking into consideration the merits of the investment, an important step is ensuring that the loan is set up correctly in order to maximise your taxation entitlements. It is crucial that you seek expert advice from your tax adviser and finance broker at this stage as this will underpin the entire future financing and tax position of the investment.


Unit Trusts – Tax Tip 8:

The Unit Trust has emerged as the best vehicle for syndicated property investments. When unrelated parties are involved in property investment, a Unit Trust allows each party to receive a fixed entitlement. Unit Trusts are used by both big and small property investors. Examples of some Unit Trusts include big property managed funds and private property developers. The various advantages associated with this structure include possible access to the Capital Gains Tax 50% Discount and the acceptance of Self Managed Superannuation Funds as unit holders.


Stamp Duty – Tax Tip 9:

If you own a rental property and later wish to transfer it to other family members or associated parties, you will incur full as valorem duty on the transfer. There are only few circumstances where a transfer of property will be exempt from stamp duty fees.


Principal place of Residence (PPR) – Tax Tip 10:

All Australians are able to claim a capital gains tax exemption for their PPR. If you do not live in the property you may still be able to access this exemption provided a PPR Election is completed. Further, you may continue treating the property as your PPR for a period of up to 6 years even if it is being rented.


Disclaimer : Information contained in this article represent general comments only and this is not advice. Tax is only one of the factors that should be taken into account when making a financial decision. You should discuss your tax affairs with a tax professional before entering into any financial transaction with tax implications.