Domestic Rental Properties and the Australian Tax Office

Along with a recent rise in the real estate segment, there has also been a similar rise in rental property investment as well. With this, there has been significant change in the tax laws as well.

Rental property investments have picked up in Australia, the way no one ever imagined. More and more people are investing in this sector, with a view to earn quick profits. As it is, before, you may think of entering the segment, as an investor, it is better, to take into account tax considerations.

It is worth mentioning that, the rental receivables are subject to tax accountability, as per guidelines of the Australian Taxation Office. So, if you own a rental property then the rent received on the property is accountable for taxation.  However, you are also entitled to a number of tax deductions, which you can avail to reduce your tax burden.

You can avail a number of tax deductions, like you can get tax deductions on the amount of mortgage interest which you have paid on the rental property in the current financial year. Apart from that, you are also entitled to get a deduction on the amount of insurance premium paid on the property. However, it needs to be mentioned here, that deduction is applicable only on the amount of premium, which has been paid for the current year. Therefore, all advance premiums are not eligible for tax deduction.

Also, you are eligible for tax deduction on the basis of provision for depreciation. As it is, by making provision for depreciation, you would be able to avail tax benefit and lower the tax liability. You may also avail deduction on the basis of legal expenses incurred on the rental property. So, the fee that you have paid to your real estate attorney is eligible for tax deduction. Apart from that you can also claim deduction on the amount of money that you have spent on the repairs of the rental property.

In case if your total rental income exceeds the total deductions allowed, then in that case, your net assessable rental income amount, is added to your other taxable income. However, in case, the total allowable deductions exceed the total rental income, then in that case, the loss generated may be off-set against your other taxable income.

Now, in case, if you sell a rental property, then you will have to pay a tax on the capital gains on the net sale proceeds, if applicable.  It is also worth mentioning, that you will also have to pay tax on gains made on the sale of any depreciated items that are sold along with the property.

A number of other tax implications are also applicable in case of rental property investments, such as ownership of the rental property and so on. As it is, these implications can considerably increase or reduce your tax liability.