PROPERTY TAX
The information in this newsletter is of a general nature
only and is not intended to be relied upon as, or as a
substitute for, specific professional advice.
Income and Expenses
Rental properties owners are allowed a range of tax claims for expenses related
to the production of rental income.
Deductible expenses in whole or in part include:
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Advertising Bank charges Borrowing expenses Cleaning Commission
Council and Water Rates
Depreciation Gardening Insurance Interest
Land tax
Lease expenses
Legal expenses for
collection of rent, arrears;
ejectment;
investigating credit worthiness;
lease preparation.
Power supplied (gas/electricity) Preparation, registration, stamping of
lease documents
Repairs
Replacement of crockery, linen etc. Safe deposit box fees
Secretarial, bookkeeping fees
Services expenses
Tax advice cost
Telephone, postage and stationery
Travel
Interest on loan
Interest paid on a loan used to purchase the rental property or for repairs is
deductible and is claimed in the year in which it is incurred.
An investment is negatively-geared where the interest paid on the loan used to
purchase the property exceeds the net income from the property.
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
PAYG Tax Office Withholding Variation.
Where the overall taxpayer's tax- able income is reduced due to a net rent loss,
the Tax Office may approve an application for the variation of tax installment
deductions from salary or wages for a taxpayer. It does not follow that the
investment or related deductions have Tax Office approval.
Repairs versus improvements
A deduction is allowed for repairs to the rented property, e.g. repainting, fixing
leaks, mending broken parts, electrical repairs, replacing broken fences or
windows. Repairs carried out soon after purchase may be disallowed as they
are" initial repairs". You need to ensure that repairs are carried out when the
property is still income- producing, otherwise the deduction may be lost. Capital
improvements to the property are not deductible.
Lease documentation
The cost of preparing, registering and stamping the lease is deductible as are
costs associated with the assignment or surrender of the lease.
Insurance
Deductions are allowable for premiums on policies covering damage to
premises or contents, fire burglary, storm damage, plate glass, public risk, etc.
Commissions, management fees
A deduction is allowable for com- missions and management fees paid to estate
agents for the collection of rent. Letting fees may also be deductible. However,
no deduction is allowable for an initial letting because it is considered a capital
expense except for the letting of holiday flats on short-term leases.
Rates, land tax
Deductions are allowed for council and water rates (including excess water
rates) and Land tax. Payments made on the purchase of the property as an
adjustment of rates and taxes paid by the vendor are also deductible. Stamp duty
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
on the purchase is not deductible, but may be taken into account in calculating
the property's cost base for capital gains tax purposes.
Ejectment, legal costs
Legal expenses incurred by a lessor in ejecting a rent-defaulting tenant are
usually deductible. Costs relating to fair rent hearings would be deductible as
would legal costs of investigating the credit-worthiness of a prospective tenant.
Travel
Deductions are available for the cost of travel expenses for:
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collecting rents;
repairs of the property;
preparing the property for incoming tenants;
Inspecting the property.
Travel costs to inspect a rent producing property prior to purchase would not be
deductible.
Other incidentals
Deductions are also allowed for other expenses such as advertising for tenants,
bank charges, cleaning, gardening, postage, stationery, telephone, secretarial
fees, safe deposit box fees.
Vacancy
The absence of rental income does not automatically prevent the tax- payer
from deducting expenditure incurred during that period.
However it would be necessary to show that every effort was made to obtain
tenants during that time. Temporary work transfer
Renting out a private residence during the period of a temporary transfer in the
place of his employment, relevant losses and outgoings on the property are
deductible for that period.
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
Apportionment
Expenses need to be apportioned if only part of the property is let, the property
is let for only part of the year, or the property is let for a mixture of commercial
and non- commercial purposes.
In the absence of a true partnership agreement between joint tenants, they each
remain assessable on half the income and entitled to claim half the losses.
Non-commercial transactions
It is normally necessary to show that a lease has a commercial flavour the rental
is considered assessable and outgoings deductible. It would appear that a
transaction is more likely to be accepted if:
(1) formal lease prepared;
(2) the rent is not nominal;
(3) rent is physically paid over;
(4) the lessor has had experience with other rental properties; and
(5) there is no moral or social obligation to subsidise the tenant.
If transaction has both a business and private elements, apportionment of the
outgoings may be appropriate, or even the limitation of the deduction to the
amount of income from the property.
Borrowing Expenses
Expenditure incurred in borrowing money or in the discharge of a mort- gage is
normally capital expenditure. However, sec. 67 specifically allows a deduction
for borrowing expenses and sec. 67A for certain mortgage discharge expenses.
Expenses are deductible over the period of the loan or 5 years, whichever is the
shorter period, be- ginning with the year in which they were incurred. If
borrowing expenses incurred in any year are $100 or less, they are wholly
deductible in that year.
Expenses in connection with the discharge of a mortgage are deductible to the
extent that the loan money or the property was used for assessable income
production. This includes expenses incurred to discharge the mortgage.
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
Capital Works Building Allowance (DIV 10) Residential:
Where construction of a rental property was commenced after 21 August 1984,
a capital works deduction may be available. Deductions are based on the
original cost of the construction. Where the construction commenced between
22 August 1984 and 15 September 1987 the deduction is 4% per annum. Where
construction commenced after 15 September 1987 the deduction is 2.5% per
annum. Note from 13 May 1997 the amount claimed under this section reduces
the Capital Gains Tax cost base.
DEPRECIATION
For Property let furnished, you may claim depreciation of plant, equipment and
articles installed; for example, depreciation may be claimed on furniture and fit
tings, blinds, floor coverings, refrigerators, washing machines and stoves,
television and radio sets, etc. An allowance for replacements is given for small
depreciable items where it is difficult to estimate their effective life, for
example, crockery, cutlery, bedding, linen etc.
Low-cost assets are depreciating assets that cost less than $1,000.Low-value
assets are depreciating assets that are not low-cost assets but which, on 1 July
2011, had been written off to less than $1,000 under the diminishing value
method. You can have only one low-value pool. Once you choose to allocate a
low-cost asset to a low-value pool, you must allocate to the pool all other lowcost assets you hold in that year and in future years.
An immediate 100% depreciation deduction is available for units of depreciable
property acquired on or after 1 July 1991 where the effective life is less than
three years or the cost of the unit is no more than $300. It is not necessary to pro
rate for part of a year. However, the deduction is reduced where the unit is used
only partly to produce assessable income.
The Commissioner accepts that even where a group of identical items is
purchased at one time, each individual item which meets the above criteria may
be written off in the year of purchase provided the item is regarded as a whole,
can be separately identified and has a separate function.
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
See last pages for detailed Depreciation schedule.
NSW Land Tax
Land tax is a tax levied on the owners of land in NSW as at midnight on 31
December of each year. In general, your principal place of residence or land
used for primary production (a farm) is exempt from land tax. You may be
liable for land tax if you own or part-own:
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vacant land, including vacant rural land
land where a house, residential unit or flat has been built
a holiday home
investment properties
company title units
residential, commercial or industrial units, including car spaces
commercial properties, including factories, shops and warehouses
land leased from state or local government
Rates and thresholds
The Valuer General has determined the following land tax threshold
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2015 land tax is $432,000. Premium land tax threshold $2,641,000.
Rates and thresholds
Land tax is calculated on the combined value of all the taxable land you own
above the land tax threshold. The rate of tax is $100 plus 1.6 per cent of the land
value between the threshold and the premium rate threshold and 2% thereafter.
If land is owned by a trustee of a special trust the land tax threshold does not
apply and land tax will be charged at a flat rate of 1.6% of the taxable land
value up to the premium threshold of $2,641,000 and then 2% thereafter.
If the combined value of your land does not exceed the threshold, no land tax is
payable.
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
Capital gain from a CGT event in respect of the property
When a CGT event occurs in respect of rental property acquired after 19
September 1985 and the capital proceeds exceed its cost base, a capital gain will
arise. Capital losses may be offset against the gain and, where the asset has been
owned by a person for at least 12 months; a CGT discount may be available.
The net amount of capital gain is included in the assessable income.
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Keep records of every circumstance or event that may be relevant to
working out capital gains or losses. Records must be kept for at least
five years. If the CGT event relates to a disposal of property, then the
records must be kept from the date of acquisition up to the date of sale
and then for five years after the relevant.
Consider delaying CGT events until the next income year in order to
delay the derivation of assessable income.
Keep records of other matters which may be relevant to calculating
capital gains and losses, such as capital allowance deductions.
If a capital gain has been crystallised, consider realising capital losses
in the same year to offset the capital gains.
Where CGT assets are owned by an individual, trust or complying
superannuation fund, consider holding them for at least 12 months to
qualify for the CGT discount.
Depreciating assets sold with the property, as they are subject to
separate balancing adjustment calculations on revenue account.
Principal Place of Residence CGT Exemption
Basically if you make a capital gain when selling your home it is exempt from
capital gains tax. PPR stands for principal place of residence.
CGT does not apply to your home if purchased before 20 September, 1985.
The PPR exemption can apply to a forfeited deposit or damages received from a
defaulting purchaser providing the house is put back on the market and
eventually sold.
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
A “Spec” builder who lives in the “spec” home technically qualifies for the PPR
exemption but is taxable on the profit as normal business income anyway and
this overrides the CGT exemption.
If the home is owned by a trust or company the PPR exemption cannot apply. If
you move into a house as soon as practical after you purchase it the house is
deemed to be your PPR from the time you purchased it. Further, if at the time of
purchasing your new house you have not yet sold your old house they can both
be your PPR for up to 6 months. Providing during the last 12 months you have
lived in your old residence for at least 3 continuous months and it was not used
to produce income during the period in that 12months that it was not your PPR.
If you sub divide the land your home is on and sell the new block separately
from your home the PPR exemption does not apply. If you build another house
on the block the PPR exemption can apply for up to 6 months if you sell off the
old home in that time.
You can only have one PPR at a time. Providing you have at sometime lived in
the place you can choose which house you want to be considered your PPR but
only from the time you first lived there and only up to six years after you move
out if it becomes income producing during your absence. The time frame is
unlimited if it is not income producing while you are not living there. Note if
you move back in and then out again you are entitled to another 6 years PPR
exemption even if it is income producing.
For PPR the ATO considers the following:
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Electricity and Phone connected in your name.
Registered on the electoral role to that address.
The presence of personal effects in the house.
The address given for mail deliveries.
Where your family lives.
The length of time you have lived there.
Your reasons for occupying the dwelling.
If you earn income from your PPR while you are living there than your PPR
exemption only applies to the percentage of the Capital Gain that represents the
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
percentage of the house used for private use. If the home was partly used to
produce income while you were living in it then the same percentage PPR
exemption applies during the 6 year period as the percentage the house was
used for private while you were living there.
You can elect to have vacant land or a property you are renovating classed as
your PPR for a period of up to 4years before you move into it providing you do
not have another PPR. You must move in as soon as practical after the building
is finished and live there for at least 3 months before selling or have died.
If your house is accidentally destroyed and you sell the land rather than rebuild,
your PPR exemption can continue to apply to the land until sold providing you
do not claim any other place as your PPR.
Families are discriminated against in those spouses and their children under 18
can only have one PPR between them no matter where they live. Spouses can
elect to claim their spouse’s PPR as theirs even if they never lived there and
even if their name is not on the deed. If both spouses want their separate homes
to be their PPR they only get half the exemption on each place.
If you acquired your PPR after 20th September, 1985 and used it as your PPR
until sometime after 20th August,1996, when it became income producing you
must use the market value of the property at the time it becomes income
producing, as your cost base. Therefore any assessable capital gain will only
arise on an increase in the value of the property after it ceased to be your PPR. It
is not optional.
GST and rental properties
Transaction
GST treatment
Sale of residential premises:
Newly built
Substantially renovated/built to replace
Not new
Sale of residential land
Rental of residential premises
Rental of display home
Expenses connected with rental of residential
property (insurance, repairs, agency,
commission)
Taxable if sold by entity required to be registered
Taxable if sold by entity required to be registered
Input taxed regardless of whether or not entity registered
Taxable if sold by an entity required to be registered
Input taxed regardless of GST registration status
Input taxed regardless of GST registration status
No input tax entitlement regardless of GST registration
status
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
Negative Gearing
This is effectively running the property at a loss ie the rental expenses are
greater than the rent received. Note that the interest portion only of your loan
repayment qualifies as a tax deduction. This loss is then included in your tax
return along with your other income, which reduces your total taxable income.
You hope to profit is then made when you sell the house. Capital gains tax may
be payable but this may only be payable on half the gain made. The costs
associated with buying and selling property are high (i.e. stamp duty) so the
investment would probably have to be long term to make a real profit. As time
goes on you will pay more off the house or the rent will increase so the negative
gearing may not be there anymore. If you are be in a high tax bracket you
benefit more. Example of a negatively geared property:
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Rental Income $300 p.w.
$15,600
Less Cash Flow Expenses Including Interest 16,600
Cash flow loss
1,000
Less Building Depreciation
2,200
$3,200 Loss @ 46.5% tax
 Refund of
$1,488
Note the refund has only cost you $1000 in real cash as the building
depreciation is a non cash outlay. Building depreciation reduces your cost base
for CGT purposes, if the property was purchased after 13th May, 1997.
See below for tax impact of negative gearing.
TAX RATES FOR 2015
Income
Tax Rates
0 - $18,200
$18,201 - $37,000
$37,001 - $80,000
$80,001 - $180,000
$180,001 over Plus Budget Repair levy 2%
Nil
19c for each $1 over $18,200
$3,572 plus 32.5c for each $1 over $37,000
$17,547 plus 37c for each $1 over $80,000
$54,547 plus 45c for each $1 over $180,000
Plus Medicare full Basic Levy at 1.5%
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
Property Depreciation Schedule
YEARS
ASSET
YEARS
ASSET
Air conditioning assets
Fire control assets:
(excluding ducting, pipes and vents):
Alarms:
Air handling units
20
Chillers:
Heat
6
Smoke
6
Absorption
25
Detection and alarm systems:
Centrifugal
20
Alarm bells
Volumetrics (incl reciprocating, rotary, screw, scroll):
12
Detectors (incl addressable manual call points, heat,
Air cooled
15
multi type and smoke)
20
Water cooled
20
Fire indicator panels
12
Condensing sets
15
Emergency warning and intercommunication systems
Cooling towers
15
(EWIS):
Damper motors (incl variable air volume box controller)
10
Master emergency control panels
12
Fan coil units (connected to condensing set)
15
Speakers
12
Strobe lights
12
Mini split systems up to 20KW (incl ceiling, floor
and high wall split system)
10
Warden intercom phone
12
Packaged air conditioning units
15
Extinguishers
15
Pumps
20
Hoses and nozzles
10
Room units
10
Pumps (incl diesel and electric)
25
Ceiling fans
5
Clocks, electric
Digital video display (DVD) players
10
5
Stair pressurisation assets:
A C variable speed drives
10
Pressurisation and extraction fans
25
10
Door closers
10
Sensors
Door stops, freestanding
10
Kitchen assets:
Escalators (machinery and moving parts)
20
Cook tops
12
Crockery
5
5
Evaporative coolers:
Fixed (excluding ducting and vents)
20
Cutlery
Portable
10
Dishwashers
10
Freezers
12
Floor coverings (removable without damage):
Carpet
10
Garbage disposal units
10
Floating timber
15
Microwave ovens
10
Linoleum
10
Ovens
12
Vinyl
10
Range hoods
12
13
1/3
10
Refrigerators
12
Stoves
12
Water filters, electrical
15
Furniture, freestanding
Garbage bins
Garbage compacting systems (excluding chutes)
Generators
6 2/3
20
Laundry assets:
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
Gym assets:
Cardiovascular
Clothes dryers
5
Ironing boards, freestanding
7
5
Resistance
10
Irons
Hand dryers, electrical
10
Washing machines
Heaters:
Outdoor assets:
Fixed:
Automatic garage doors:
Electric
15
Gas:
10
10
Controls
5
Motors
10
Ducted central heating unit
20
Barbecue assets:
Other
15
Fixed barbecue assets:
Freestanding
15
Sliding trays and cookers
10
Freestanding barbecues
5
Hot water systems (excluding piping):
Electric
12
Floor carpet (incl artificial grass and matting)
5
Gas
12
Furniture, freestanding
5
Solar
15
Gardening watering installations:
Intercom system assets
10
Control panels
5
Lifts (incl hydraulic and traction lifts)
30
Pumps
5
Timing devices
5
8
Lights:
Fittings (excluding hardwired)
5
Garden lights, solar
Freestanding
5
Garden sheds, freestanding
Shades, removable
5
Gates, electrical:
Linen
5
Controls
5
Motors
10
Master antenna television (MATV) assets:
15
Amplifiers
10
Operable pergola louvres:
Modulators
10
Controls
15
Power sources
10
Motors
15
Mirrors, freestanding
15
Sauna heating assets
15
Radios
10
Sewage treatment assets:
Rugs
Solar power generating system assets
7
Controls
8
20
Motors
8
Stereo systems (incorporating amplifiers, cassette
players, compact disc players, radios and speakers)
Spas:
7
Surround sound systems (incorporating audio video
receivers and speakers)
10
Telecommunications assets:
Cordless phones
4
PABX computerised assets
10
Telephone hand sets
10
Television antennas, freestanding
Television sets
Vacuum cleaners:
5
10
Fixed spa assets:
Chlorinators
12
Filtration assets (incl pumps)
12
Heaters (electric or gas)
15
Freestanding spas (incorporating blowers, controls,
filters, heaters and pumps)
17
Swimming pool assets:
Chlorinators
Cleaning assets
12
7
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The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.
Ducted:
Filtration assets (incl pumps)
12
Hoses
10
Heaters:
Motors
10
Electric
15
Wands
10
Gas
15
Portable
10
Solar
20
Ventilation fans
20
Tennis court assets:
Video cassette recorder systems (VCR)
5
Cleaners
3
Water pumps
20
Drag brooms
3
Window blinds, internal
10
Nets
5
Rollers
3
Window curtains
6
Window shutters, automatic:
Umpire chairs
Controls
10
Security and monitoring assets:
Motors
10
Access control systems:
15
Bathroom assets:
Code pads
5
Accessories, freestanding (incl shower caddies,
Door controllers
5
soap holders, toilet brushes)
5
Exhaust fans (incl light/heating)
10
Readers:
Heated towel rails, electric
10
Proximity
7
2
Swipe card
3
Shower curtains (excluding curtain rods and screens)
Spa bath pumps
20
Security systems:
Code pads
5
Control panels
5
Detectors (incl passive infra red, photo sensors
Closed circuit television systems:
Cameras
4
Monitors
4
Recorders:
and vibration)
5
Digital
4
Global System for Mobiles (GSM) Units
5
Time lapse
2
Noise makers (incl bells and sirens)
5
Switching units (incl multiplexes)
5
13 | P a g e
The information in this newsletter is of a general nature only and is not intended
to be relied upon as, or as a substitute for, specific professional advice.