HOW THE TAX SYSTEM IN AUSTRALIA IS SET UP TO FAVOUR PROPERTY INVESTMENT?

March 7, 2023

Australia is one of the best places to invest in real estate and owning property has long been referred to as the Great Australian Dream. With the Australian property market worth almost $10 trillion in the June quarter of 2022 following data released by the ABS in September, it’s clear that property has become a popular source of wealth-building for Australians.

In fact, property is an even more popular investment than shares, with the most recent value putting the property market at more than four times the Australian share market–which has a market capitalisation of around $2.47 trillion.

Aside from the country’s strong and stable economy and the population’s ever-growing demand for properties, Australia’s tax system is designed to help property investors increase their profit margins. So before jumping on board the wealth-building potential of property, here’s what you should know. 

How is the Australian tax system set up to favour property investment?

The Australian Taxation Office (ATO) offers a range of deductions, exemptions, and credits that can help reduce the amount of taxes paid by property owners. These include concessions for capital gains tax, as well as tax deductions when owning an investment property. Additionally, interest payments on loans used to purchase an investment property are also tax deductible.

For this article, we will only focus on the 3 key treatments that will impact property investors: negative gearing, the concessional treatment of capital gains and tax deductions. 

1. Negative Gearing

Have you ever been in a situation where your asset’s expenses are greater than the income it generates? 

With negative gearing, property investors can offset their asset’s taxes against their other taxable income streams, such as employment or business income. Negative gearing reduces overall taxes, which in turn, increases cash flow. Here’s an example of how negative gearing works:

Ruth is a project manager at a telecommunication company, earning an annual salary of $120,000. He has an investment property and rents it out for $450 per week, or $23,400 per year. However, the total expenses for the property, including interest on the loan, property management fees, repairs and maintenance, and other costs, add up to $30,000 per year. 

Because of negative gearing, Ruth can claim this loss as a deduction on his tax return, which will reduce his taxable income and, therefore, the overall tax bill. In this case, he is able to deduct the $6,600 loss from his salary, and his taxable income is reduced to $113,400 instead of $120,000.

This can make owning an investment property more attractive, as you can use your losses to reduce your taxes and increase your cash flow.

2. Concessional treatment of capital gains

Capital gains tax (CGT) is the tax you have to pay whenever you sell your assets, such as your property investments. But did you know that you can get a discount as a property investor? 

HOW CAN I GET A CGT DISCOUNT?

There are two qualifications for a capital gains tax discount:

  • Own the property investment for at least 12 months
  • You are an Australian resident for tax purposes

Qualified individuals can get a 50% discount for their capital gains tax. This means that only half of any profit made from the sale of the property will be subject to taxation. However, it’s important to note that while these concessions can provide significant savings, it is important to check with your accountant or financial advisor before taking advantage of them.
To learn more about the CGT discount, the Australian Treasury have a thorough guide about it.

3. Tax deductions 

You can claim tax deductions for the majority of the expenses that you incur if you rent out your property (or it is genuinely available for rent).

How the tax system in Australia is set up to favour property investment

WHAT EXPENSES CAN I CLAIM? 

There are several expenses that you may be entitled to claim for an immediate deduction in the same income year that you incur. 

These includes: 

  • Advertising to tenants
  • Body corporate fees and charges
  • Council rates & water charges
  • Land tax 
  • Cleaning, Gardening, Lawn mowing, Pest control
  • Insurance (building, contents, public liability, loss of rent)
  • Interest Expenses & Legal Expenses
  • Repairs and maintenance
  • Depreciation

Find out more expenses that you are eligible to claim here

Property Investment with St Trinity

If learning about the Australian tax system and finding the best property to invest in feels overwhelming, St Trinity can help sort it out for you.

At St Trinity, we specialise in providing advice and assistance with property investments across Australia. We have extensive experience in helping clients structure their investments to maximise returns while minimising taxation liabilities. We help our clients identify attractive properties that will provide long-term growth and income potential, as well as advise them on managing their portfolios effectively.

BUILDING YOUR WEALTH THROUGH PROPERTY INVESTMENT

Property investment is one of the best ways to diversify your income stream. Investors can claim depreciation on their rental properties and deduct certain costs related to their investment. Additionally, capital gains tax on profits from the sale of a rental property may be reduced or even eliminated depending on the length of ownership and other factors.

According to our latest property market report, the demand for rental spaces will soar higher this 2023. If you want to maximise your profits, now is the best time to invest in real estate properties.

DISCOVER HOW SANDRA & GEORGE BECAME PASSIONATE PROPERTY INVESTORS WITH ST TRINITY

Investing in properties, however, comes with several risks. That is why if you want to start your journey as a property investor, you have to find the right partner—just like this lovely couple.

Discover how Sandra & George became passionate property investors with St Trinity.

All in all, Australia’s tax system is set up to heavily favour property investment. With the right team on your side, you can maximise your earnings for your real property investments. 

If you’re looking to build your wealth and secure your financial future, property investment is one of the best ways to do it. Our team is here to help you every step of the way and ensure that you get the most out of your investment. Contact us below.

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