Tax-smart tips for your investment property
Being tax-smart when investing in property means more than making the right property choices. If you use your property to earn income at any time, you will have tax obligations and entitlements. This guide will help you know what information you will need to provide to us.
If you sell an investment property or your main residence that you have rented out, remember:
You may have to pay capital gains tax, even if you transfer the property into someone else’s name.
A capital gain is the difference between your cost base (cost of ownership) and your capital proceeds (what you receive when you sell the property or the market value when you transfer the property).
If your costs of ownership are greater than your capital proceeds, a capital loss will be included in your return and this amount may reduce future capital gains.
If you have claimed a deduction for capital works or depreciation in any income year, your cost base will not include these amounts.
If you own the property for more than 12 months, and you are an Australian resident, you may be entitled to a 50% discount on tax on the capital gain.
Rental property owners should remember three simple steps when collating their rental tax information for us:
Advise all the income you receive This includes income from short term rental arrangements (eg a holiday home), sharing part of your home, and other rental-related income such as insurance payouts and rental bond money you retain.
Get your expenses right Eligibility – Provide only expenses incurred for the period your property was rented or when you were actively trying to rent the property on commercial terms. Timing – Be aware that some expenses must be claimed over a number of years (improvements, renovations). Apportionment – Advise us if the property was rented out for part of the year or if only part of your property was rented out. We will also need to know if you used the property yourself or rented it below market rates. You must advise if you share ownership.
Keep records to prove it all You should keep records of both income and expenses relating to your rental property, as well as purchase and sale records. Getting your record keeping right makes tax time easy. You need to keep proper records over the period you own the property.
Keep the right records for each stage of your journey to ensure you're able to claim everything you're entitled to.
In order to prepare your rental schedule or calculate a capital gain after you sell your investment property, the below are essential records to keep and provide to us:
Contract of purchase
Costs to buy the property
Proof of earned rental income
All your expenses, if not reported on an rental agent statement
Periods of private use by you or your friends
Periods the property is used as your main residence
Loan documents if you refinance your property
Efforts to rent the property out
Contract of sale
Sale of property fees
Calculation of capital gain or loss
Record keeping tips
Set up an easy-to-use record-keeping system as your first priority. This can be as simple as a spreadsheet or you can use professional software.
Keep records of every transaction over the period you own the property. This includes contracts of purchase and sale, as well as conveyancing and loan documentation.
Scan copies of your receipts to make it easier to store and access them.
Keeping proof of all your income, expenses and efforts to rent out your property means you can claim everything you are entitled to.
This advice is general in nature. Re-produced from the ATO.