Are you confused about the tax depreciation and government grants associated with buying an investment property? With all the rules and regulations surrounding property investment and tax, that is understandable. Here are some tips to help.
- Understand how depreciation affects your cash flow
Experienced property investors will consider depreciation before buying their next investment property.
Investors who purchase a property for income-producing purposes can depreciate the building and the items within. This depreciation can be claimed as a tax deduction, which can improve cash flow.
In general, there are two types of depreciation that can be claimed: capital works deductions and plant and equipment depreciation. Property investors should arrange for a qualified Quantity Surveyor to inspect their home and prepare a depreciation schedule for their Accountant. To learn more about the types of depreciation and what is included in a depreciation schedule, visit our tax depreciation schedule page.
Investment property rules and regulations vary depending on the type of property you buy, so it is important to seek expert advice from a Quantity Surveyor such as BMT Tax Depreciation to discover how legislation will apply to your individual circumstances.
Investors should be aware of the recent changes to legislation relating to previously used plant and equipment found in second-hand properties. To learn more, visit our page regarding the changes to the depreciation rules.
- Be aware of Capital Gains Tax (CGT) and any exemptions
Every investor who buys an income-producing property should discuss CGT with their Accountant from the outset of their purchase. An Accountant will provide valuable advice on CGT payable down the track should they decide to sell the property or remove any of the assets it contains.
There are a range of CGT rules and exemptions for investors and it is important to be across them if you are planning to rent a property or your principal place of residence.
Recent changes to depreciation legislation regarding previously used plant and equipment assets found in
second-hand properties also play a role in ensuring CGT is calculated correctly at the time of sale of the property or removal of assets. To learn more, read our recent Maverick article, ‘Don’t sell yourself short on Capital Gains Tax’.
- Learn the rules regarding stamp duty and first home owner’s grants (FHOGs)
If you are a first home buyer, it is important to do your research and know the latest rules regarding stamp duty and FHOGs in your state to ensure that you take advantage of any savings or opportunities that may be available.
There have been recent changes to the rules. These changes impact both Developers and investors. Here is a summary of the rules in each state:
NSW: From 1 July 2017, first home buyers will not have to pay stamp duty for both new and existing homes for properties up to $650,000. The duty will be reduced for amounts between $650,000 and $800,000.
A $10,000 grant for builders of new homes up to $750,000 and purchasers of new homes up to $600,000 is available.
VIC: Stamp duty has been abolished for first home buyers who purchase a property valued at or below $600,000 and phased in for properties valued up to $750,000.
Both new and established homes are eligible for a first home buyer duty reduction of up to 50 per cent if the home is valued at $600,000 or less. A $10,000 first home buyers grant is available when you buy or build your first home valued at $750,000 or less. The grant is up to $20,000 if the build is in regional Victoria with contracts signed from
1 July 2017.
QLD: First home owner transfer duty concession will be available for the purchase of vacant land, provided a place of residence is constructed. The stamp duty will be determined by the value of the land.
A first home owner’s grant of $20,000 is available for those buying or building a new home up to $750,000 for contracts signed between 1 July 2016 and 31 December 2017. Contracts signed outside of this period qualify for the $15,000 grant.
WA: A concessional rate of duty may apply to a purchase of residential property valued at less than $200,000, which will be the primary place of residence for the purchaser; or a business where dutiable value is less than $200,000, which the purchaser intends to continue to run indefinitely.
First home owners buying or building a new home may apply for a grant up to $10,000. Contracts signed between 1 January 2017 and 30 June 2017 may be eligible for an additional boost payment of $5,000.
ACT: Stamp Duty still exists. First home buyers might be eligible to defer payment of duty if they are also eligible for the first home owner grant. A FHOG of $7,000 is available for new, significantly renovated or off-the plan properties valued up to $750,000.
NT: Stamp Duty still exists. A first home owner grant of $26,000 is available for first home buyers or building a new home or an established home from 24 May 2016. Plus, a first home owner discount on stamp duty of up to $23,928 for first home buyers purchasing an established home valued up to $650,000.
TAS: All transfers of land are subject to duty on the instrument of transfer based on the value of the land (including improvements) or the consideration (including GST), whichever is greater (unless an exemption or concession applies). From 30 June 2018, the FHOG will be a $10,000 payment.
The is no stamp duty on commercial property, as of 6 June 2018 for properties with a purchase price of less than $1.5 million.
- Use available resources to help with research
There is a range of valuable tools and resources available to help you navigate the rules and regulations associated with owning a rental property. The Australian Taxation Office offers a range of easy to use links on their site. If you are planning to invest, why not visit the property section of their website.
MyBMT is another great tool that helps investors research investment properties and see the associated depreciation deductions. Register to find out what you can claim from your property and more by visiting mybmt.bmtqs.com.au today.