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 dependent 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.

Trusts – Tax Tip 4:

It is generally believed that the best and most effective asset protection vehicle is a discretionary trust. However a discretionary trust may not be ideal for property investment where there are borrowings and sizable interest expenses. A fixed interest trust is generally considered the way to go when you have significant borrowings attached to the property investment. However, the loan should be in the unit holder's name and any taxpayer considering this structure should obtain independent tax advice. Also, there are additional costs when a property is owned in a trust.

Land Tax – Tax Tip 5:

Properties owned by you other than your principle place of residence with land value exceeding your state threshold attract Land Tax. If your land value exceeds the threshold you should research the various concessions and exemptions that are available 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. This investment must be in accordance with the investment strategy and may involve a trust or installment warrant arrangement.

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. Examples of these include the 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 NSW 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. If the property was acquired in a unit trust and had value less than $1 million, then the unit trust could redeem the units and issue new units to the incoming family member or associated party. In this case there would be no stamp duty payable as there has been no transfer of ownership.

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: This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in this article is for guidance only and should not be relied upon without obtaining professional advice having regard to your specific circumstances.