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The following is a general guide
which need not apply to every investor but will give some
guidance as to matters to be considered.
The liability of a taxpayer, which includes both an
individual and a company, to taxation in Australia is based on
the residence of the taxpayer and the source of the income.
The major areas of taxation that affect property investors are
income tax ,
goods
and services tax and
capital
gains tax .
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1. income tax ...
The main taxing provisions of the Australian Income Tax
Assessment Tax provide that a ‘resident’ of Australia for
tax purpose will generally be subject to Australian tax on
world-wide income and capital gains, i.e. income from all
sources.
These rates apply to individuals who:
- are residents of Australia, and
- did not leave full-time education for the first time
during the financial year.
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For further information on tax matters in Australia, visit
Australian
Taxation Office .
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Tax
rates 2001-02 and 2002-03 |
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Annual
Taxable Income (AUD) |
Individual
tax rates |
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Between 0
– 6,000 |
Nil |
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Between 6,001 –
20,000 |
17 cents for
each dollar over AUD6,000 |
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Between
20,001 – 50,000 |
AUD2,380 plus
30 cents for each dollar over AUD20,000 |
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Between
50,001 – 60,000 |
AUD11,380
plus 42 cents for each dollar over AUD50,000 |
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Over 60,000 |
AUD15,580
plus 47 cents for each dollar over AUD60,000 |
A ‘non-resident’ of Australia for tax purposes will only
be subject to Australian tax on Australian sourced income
excluding interest income, dividend income and royalty income.
Australia’s Double Tax Agreements with other countries
generally reduce the rates of withholding tax for residents of
that country.
If you are a non-resident for the full year, the following
rates apply:
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Tax
rates 2001-02 and 2002-03 |
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Annual
Taxable Income (AUD) |
Individual
tax rates |
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Between
0 –
20,000 |
29
cents for
each dollar |
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Between
20,001 – 50,000 |
AUD5,800 plus
30 cents for each dollar over AUD20,000 |
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Between
50,001 – 60,000 |
AUD14,800
plus 42 cents for each dollar over AUD50,000 |
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Over 60,000 |
AUD19,000
plus 47 cents for each dollar over AUD60,000 |
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» rental income ...
Rental income includes the full amount of:
- money you earn when you rent out your property,
- bond money retained in place of rent, and
- insurance payouts or reimbursement of any rental
expenses you claimed.
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Rental income
generated from Australian real property is Australian
income and is subject to income tax regardless of whether
or not the owner is a resident or non-resident of Australia.
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» tax deductible expenses ...
You can claim a deduction for certain expenses you incur for
the period your property is rented or is available for rent.
Expenses that you may be able to claim include:
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However, you
cannot claim expenses of a capital or private nature.
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Advertising for tenants
Bank charges such as
borrowing costs/loan arrangement fees are tax deductible over
a period of years or the term of the loan, which ever is the
lesser period.
Body corporate fees
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Capital works such as capital expenditure incurred on
the construction of a building or on the construction of
an extension, alteration or improvement of a building may
be eligible for a building allowance deduction over a
number of income years where the building or extension,
alteration or improvement is to be used for the purpose of
producing assessable income.
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The write-off rates vary over
the years between nil, 2.5% and 4% depending on the type
of building and the date of construction.
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Cleaning
Council rates
Depreciation on any furniture and fittings in the rental
property and plants or articles installed in property and
employed in deriving assessable income may be deducted
over a number of income years.
Electricity and gas
Gardening and lawn mowing
In-house audio/video service charges
Insurance for building, contents and public liability
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Interest on loans such as
interest paid on borrowed funds:
(i) used solely to acquire an
income-producing asset or
(ii) employed in purchase costs,
repairs, maintenance and improvements.
The overall taxation result of a negatively geared property is
that a net rental loss arises. In this case, you may be able
to claim a deduction for the full amount of rental expenses
against your rental and other income, such as salary, wages or
business income, when you complete your tax return for the
relevant income year.
When the loss cannot be fully recouped in a particular year,
it may be carried forward indefinitely. This makes negative
gearing particularly attractive to those taxpayers with high
incomes in Australia. Further, the losses may also be used to
offset any capital gains which may arise from the property.
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Investors typically use
gearing when making real
estate purchase, this indicates that the purchase has been
financed by borrowed funds.
Negative gearing occurs when a rental property is
purchased with the assistance of borrowed funds and the net
rental income, after deducting other expenses, is less than
the interest on borrowings.
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Land tax. The rate of tax
varies from State to State but is usually between 1% to 2% and
is imposed on the total of the unimproved value of taxable
land less an allowance for a tax free threshold.
Legal expenses for preparation, registration and
stamping of documents.
Pest control
Property agent's fees and commission
Quantity surveyor's fees
Repairs and maintenance.
Repairs do not include the replace of any entirety.
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Secretarial and bookkeeping fees
Security patrol fees
Servicing costs such as servicing a
water heater
stationery and postage
Telephone calls and rental
Tax advice expenses, i.e.
expenses associated with obtaining tax advice, in preparing
tax returns and in dealing with the Australian Tax Office on
any tax disputes.
Travel and car expenses for rent collection, inspection of
property and maintenance of property
Water charges
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Expenses you are not able to claim include:
- acquisition and disposal costs, however, these are
accounted for at the time of sale within the capital gains tax
calculation;
- expenses not actually incurred by you, such as water or
electricity charges borne by your tenants;
- expenses that are not related to rental of a property, such
as expenses connected to your own use of a holiday home that
you rent out for part of the year.
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DISCLAIMER
All information provided are to the best of the authors'
knowledge true and accurate. No liability is assumed by the
authors, or publishers, for any losses suffered by any person
relying directly or indirectly upon this information. It is
recommended that clients should consult a senior
representative of a reputable accounting or tax consulting
firm before acting upon this information.
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