Investment Property/Negative Gearing
It’s always wise to consult a tax adviser for personalized guidance, but there are several common items you can claim on your tax return.
Ask KPG Taxation before you take Investment Loan
because we know the important details about Investment Loans
These include:
- Interest on investment loans
- Accountant fees
- Insurance on rental properties
- Repairs and maintenance
- Corporate fees
- Land tax
- Depreciation on buildings, fixtures, and fittings
However, stamp duty is not tax-deductible. It is paid when purchasing a property but can help reduce capital gains tax if the property is sold at a profit, as it is factored into the cost base of the property. This can minimize the taxable profit from the sale.
Don’t ever let your business get ahead of the financial side of your business. Accounting, accounting, accounting. Know your numbers. Tilman J. Fertitta
Tax Benefits in Investment Property
It’s always important to seek professional advice to ensure compliance with tax regulations. Tax advisers can help you optimize your property investments without breaching any tax office rules. Keeping proper records, separating home and rental property expenses, and holding onto receipts will help you maximize tax deductions.
Key Tax Concepts:
- Negative Gearing: This occurs when the income from an investment property (like rental income) is less than the expenses (interest on loans, repairs, etc.). While this results in a loss, it can be offset against other income to reduce taxable income. However, you need another income source to cover the shortfall.
- Capital Gains: Capital gains are the profits earned from selling capital assets such as property or shares. These gains must be reported on your income tax return and are subject to capital gains tax (CGT), which is part of your overall income tax. CGT does not apply to depreciating assets such as business equipment or fittings in a rental property. If you incur a capital loss, it cannot be claimed against other income but can offset future capital gains.
Seeking professional tax advice will help ensure you’re prepared for any tax liabilities, including setting aside funds for capital gains tax if applicable.
Foreign Income Tax Returns
As an Australian resident, you are required to declare and pay tax on your worldwide income, which includes foreign income. This means you need to report any income earned overseas in your Australian tax return.
Types of Foreign Income to Declare:
- Business Income: Any business activities conducted overseas must be reported, and you may need to pay Australian tax on those earnings depending on the tax laws of the foreign country and Australia.
- Service or Employment Income: If you earn salary, consulting fees, or other remuneration abroad, it must be included in your foreign income tax return.
- Investment or Asset Income: Income from foreign investments, such as rental income, dividends, interest on bank deposits, or pensions, must also be declared. This includes earnings from superannuation funds or government pensions in other countries.
Foreign Income Tax Offset: If you have paid tax on your foreign income overseas, you may be eligible for a Foreign Income Tax Offset (FITO) in Australia. This credit can help reduce your Australian tax liability, but you must provide proof of the tax paid overseas.
Non-Residents: If you are not an Australian resident for tax purposes, you are not required to declare any income earned outside of Australia.
Sole Trader: A sole trader operates their own business independently and is responsible for all aspects, including paying employees’ superannuation and managing their own retirement savings. Sole traders are required to declare both domestic and foreign income, just like any other resident taxpayer.
Consulting a tax advisor is highly recommended to ensure compliance and to understand how to claim credits, such as the Foreign Income Tax Offset.