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Capital gains tax
If you acquired your rental property, or depreciating assets used in relation to your rental property, after 19 September 1985, capital gains tax may apply when you dispose of the property and the depreciating assets.
You do not make a capital gain or capital loss if you dispose of a depreciating asset after 11.45am (by legal time in the ACT) on 21 September 1999 unless the asset was also used for purposes other than producing income—for example, if you used it partly for private purposes. Note: an amount may still be included in assessable income or a deduction allowed in the income year in which the asset is disposed of under the rules dealing with depreciating assets (see What happens if you no longer hold or use a depreciating asset?).
If you disposed of a rental property and you have claimed capital works deductions for construction expenditure (see Capital works deductions (formerly special building write-off)), those deductions may be excluded from the cost base or reduced cost base of the property. See Deductions affecting CGT cost base calculations.
For more information, see the publication Guide to capital gains tax.
A rental property is negatively geared if it is purchased with the assistance of borrowed funds and the net rental income, after deducting other expenses, is less than the interest on the borrowings.
The overall taxation result of a negatively geared property is that a net rental loss arises. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental and other income—such as salary, wages or business income—when you complete your tax return for the relevant income year.
If your property is located outside Australia, special rules apply to the deductibility of your rental property expenses. Question 19 in TaxPack 2003 supplement contains further information on foreign source income. If you are unsure of your obligations, contact your professional adviser or the ATO.
If you make a profit from renting your property, you will need to know about the PAYG instalments system.
The PAYG instalments system commenced on 1 July 2000 and replaced the former provisional tax system. This system requires you to pay instalments during each income year to meet your expected tax liability for that year. You will generally be required to pay PAYG instalments if you earn $2,000 or more of business or investment income—such as rental income—and the debt on your income tax assessment is more than $500.
If you are required to pay PAYG instalments the ATO notifies you. You will usually be required to pay the instalments at the end of each quarter. There are two options if you pay by quarterly instalments:
- pay the instalment amount calculated by the ATO (as shown on your activity statement), or
- pay the instalment amount you work out, based on your instalment rate multiplied by your investment and business income.
You may be able to pay an annual PAYG instalment if your notional tax is less than $8,000. Your notional tax is generally the equivalent of the tax you would have paid on your business and investment income, excluding any capital gain, based on your last income tax assessment.
For further information, see the publication Introduction to PAYG income tax instalments.
If you are registered for goods and services tax (GST) and GST was payable in relation to rental income you derived, do not include the GST in the amounts you show as income in your tax return.
Similarly, if you are registered for GST and entitled to claim input tax credits for rental expenses, you do not include the input tax credits in the amounts of expenses you claim. If you are not registered for GST or the rental income was from residential premises, you include any GST in the amounts of rental expenses you claim.
For further information, call the Business Tax Reform Infoline on 13 28 66.
Table Of Contents
Last Modified: Monday, 4 December 2006
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