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Understanding Investment Property Tax In Australia

Property investing can have a lot of complicated processes that many investors, whether experienced or newcomers, struggle to get their head around – none more so than the tax implications when owning property.

Property investors in Australia must, of course, adhere to Australian property tax laws but are also able to benefit from investment property tax deductions.

We’ve previously discussed some of the tax benefits for property investors.

But it’s also critical to have a comprehensive insight into the various investment property tax implications, so that investors can make the tax system work for them.

We’re going to break down some of the taxes applicable to property investors and what obligations may be involved as an owner of a property portfolio.

Calculating Rental Income Tax

Before looking at the various taxes on investment property in Australia, it’s important to know how to determine how much tax you’ll pay.

The revenue you made from the property, i.e. rental income, is considered assessable taxable income. The tax paid from your rental income is based on your marginal tax rate, with variable brackets depending on that total amount earned.

So if you’re earning $80,000 from your 9-5 job, and $20,000 from rental income each year, your taxable income would be $100,000 prior to any deductions.

From this, you’ll be able figure out the tax bracket you fall into. In this example, the marginal tax rate will be around 32.5%.

You’ll be required to declare any rental income from a property on your annual tax return.

Remember, it’s really important to seek advice from a tax professional or accountant when it comes to determining tax obligations and seeking any potential benefits.

The Main Types of Tax for Investment Property in Australia

When it comes to property taxation in Australia, there are four key types of taxes that investors should be aware of:

1. Rental Income Tax

We’ve already discussed how to calculate your rental income tax, based on the amount you earn from the property, your income and which tax bracket you fall into as a result.

Rental income includes the rent you receive from tenants, as well as some of the other payments related to the use of the property. This could include any parking fees or other services related to living in the home.

2. Capital Gains Tax

Capital gains tax on real estate is a tax charged on any profit generated through selling the property.

Capital gains tax does form part of your income tax return, with any capital gain included in the assessable income for the year. You pay the tax as part of your overall income tax liability.

It’s worth considering any potential concessions or exemptions which you may be eligible for. An example of this includes a concession (reductions of up to 50%) for those who have owned the property for at least 12 months.

The capital gains tax doesn’t necessarily apply to all property, as those selling their primary residence may also be eligible for the main residence exemption.

3. Land Tax

This is a type of tax where you are charged based on the value of any land owned exceeding a particular threshold.

The threshold for this tax will depend on the state or territory where the property is purchased, the use of the land and ownership type.

A principal place of residence is also exempt from land tax, but will have to be paid by any additional or investment properties.

4. Stamp Duty

A stamp duty is a one-off tax paid to the state or territory government when you buy the property, or when there is a transfer of property.

The amount you pay will depend on a few key factors:

  • Where the property is purchased (or which state or territory the property is purchased in)
  • The value of the property
  • Whether there are any relevant concessions for the purchaser.

Stamp duty is usually calculated as a percentage of the purchase price or the market value of the property.

These are the four main types of tax that you’ll pay as a property investor in Australia.

From here, you can make the tax system work for you, as you develop an understanding of the benefits available for investors.

Terms such as negative gearing and depreciation will often be thrown around by investors, as they look for ways to save at tax time.

And while these are certainly valid methods for saving tax dollars, it’s important to have a comprehensive understanding of the different types of tax paid by landowners in Australia, as laid out above.

Being armed with an understanding of property tax laws in Australians means you’re in the best position to benefit from the multiple tax breaks available!

For more on how to minimise tax as a property investor, check out the following video, where I discuss a key strategy for saving money through tax!

PK Gupta
Published: 04 Jan 2024


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