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.
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Selling an investment property or main residence
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 should 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 should not include these amounts.
- If you own the property for 12 months or more and you are an Australian resident, you may be entitled to a 50% discount on tax on the capital gain.
Simple steps when preparing your return
Rental property owners should remember three simple steps when preparing their return:
- Include all the income you receive
- Get your expenses right
- Keep records to prove it all
1. Include all the income you receive
- short term rental arrangements (for example, a holiday home)
- sharing part of your home
- other rental-related income such as insurance payouts and rental bond money you retain.
2. Get your expenses right
- Eligibility – Claim only for expenses incurred for the period your property was rented or when you were actively trying to rent the property on commercial terms.
- Timing – Some expenses must be claimed over a number of years.
- Apportionment – Apportion your claim where your property was rented out for part of the year or only part of your property was rented out, where you used the property yourself or rented it below market rates. You must also apportion in line with your ownership interest.
3. 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.
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 documents.
Scan copies of your receipts to make it easier to store and access them.
Remember – keeping proof of all your income, expenses and efforts to rent out your property means you can claim everything you are entitled to.
Getting record keeping right makes tax time easy
Whether you use a tax agent to prepare your tax return or do it yourself, you need to keep proper records over the period you own the property.
Keep the right records at each stage of your journey to ensure you are able to claim everything you're entitled to, such as:
- Contract of purchase
- Conveyancing documents
- Loan documents
- Costs to buy the property
- Borrowing expenses
- Proof of earned rental income
- All your expenses
- 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
- Capital improvements
- Contract of sale
- Conveyancing documents
- Sale of property fees
- Calculation of capital gain or loss
For more information about how tax applies to property investing, see:
If you use your property to earn income at any time, you will have tax obligations and entitlements.