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Tax implications on investment properties and rental property income

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Investing Property Income

All the profits or returns from investment usually become a part of individual’s income for tax purposes. All the expenses related to investment are tax deductible. For example, interest on money individual borrowed to buy shares.

Australian residents are taxed on their worldwide income for taxation purposes, so if he/she has investments in Australia or overseas there are tax implications in obtaining, owing and disposing of them. Different types of investments have different kinds of tax implication.

Tax Implication for investment properties

If individual has an investment property, build or renovate for profit, or use a property in the running of a business, there may be implications for income tax, capital gains tax and goods and services tax (GST).

Generally, homes are exempt from tax, if individual rent out part or all of it (or used it to produce income) individual must include the income in his/her tax return (and individual can claim the associated expenses) and may have to pay capital gains tax whenever he/she sells it.

Investments will be selected on the basis of the returns which will help to meet individuals goal. Although property investors can tap into some worthwhile tax benefits which include the ability to claim a tax deduction for many of the costs of owing a rental property; the tax savings of negative gearing; and the availability of capital gains tax discounts.

Tax Deduction

You can claim tax deduction on certain types of expenses like:

  • Loan interest and ongoing loan fees;
  • Building depreciation plus depreciation of fittings and fixtures like stoves, carpets and hot water heaters;
  • Repairs, maintenance, pest control and gardening.

Negative Gearing

Negative gearing is the situation when the costs of owing individual rental property exceeds the rental income. The difference represents a loss, which can normally be offset against individual’s income like salary and wages.

Capital Gains Tax

If individual sells his/her investment property at a profit, then it is called a “capital gain”. This gain is taxable-the profit portion will be added to individual’s regular income in the year he/she made the sale, and the tax will be determined accordingly. Although there are important capital gains tax concessions available to property investors.

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