There’s more to buying an investment property than meets the eye. Along with choosing the right location and the right time to buy or sell, you also need to be aware of the tax implications. Sometimes property can help your tax position but making the wrong move can be costly. Here are some tips to keep you on the straight and narrow:
Get your dates right
The Capital Gains Tax on your property is calculated, not on the settlement date, but on the date of exchange of the contract. A lot of people get this confused and sometimes getting it right can result in a significantly smaller tax bill.
Get an estimate on your capital gains tax liability
It’s a good idea to get an estimate of your capital gains tax liability from your accountant. This will ensure you have put aside enough of your sale proceeds to provide for extra tax. It will also ensure you know which tax year the gain must be declared in, and help you decide what other strategies you can access to make sure you don’t pay more tax than you have to.
Know which assets to sell first
You can save on capital gains tax if you know which assets to sell first. If you are planning on selling a number of assets, selling those with a capital loss and capital gain in the same year can reduce your tax, compared to selling them in separate years.
Keep your ITW Variation up to date
Whenever you buy or sell a property it’s important to check if you need to adjust or cancel your Income Tax Withholding variation. If you keep your accountant informed about your investments, they can usually sort this out for you.
Get a property valuation when you rent your first home
You may need to arrange a property valuation to establish a new cost base if your home first becomes a rental property (depending on when you bought it).
Find out if you can get repairs and maintenance deductions
Repairs and maintenance on your property can be tax deductable after a period of tenancy – as long as the expenses are incurred in a financial year the property earned rental income.
See your accountant
It’s important to seek advice from your accountant whenever you are thinking of making a major change in your circumstances such as selling your investment property, moving into it, buying a new one, or moving out of your home and renting it out. Property tax can be complex and we have seen people make very costly mistakes. Professional advice can make a big difference.
If you would like more help or advice on property tax please contact us.
by Carol Allan
Carol is a Senior Accountant at Insight Accounting advice. She is a registered tax agent, has a Bachelor of Commerce and Advanced Diploma in Accounting. Carol’s areas of expertise include tax and property advice.
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- What You Need to Know When Buying an Investment Property
- Good Record Keeping for Your Investment Property
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.