It is already June, first month of winter and last month of the financial year. Time also to look at lodging those dreaded tax returns. Have you bought or sold property this year? Did you have tenants in an investment property, or make repairs or improvements on your home?
What you do during each stage of the life of your property can affect your tax for years to come. The Australian Taxation Office (ATO) has published the following guidelines to your tax obligations according to whether you are buying, selling, owning or investing in a home.
When buying:
- Generally, the names you put on the purchase contract determine who must declare any income and can claim the expenses.
- Costs associated with buying your property may be tax deductible or may be included in the capital gains tax `cost base' (cost of ownership) when you sell the property.
- The date you enter into the contract, not the settlement date, is your date of purchase for capital gains tax purposes.
While you own a home:
- You need to include all of your rental income in your tax return.
- Tax deductions on a rental property can include rates, interest, insurance, real estate agent management fees, depreciation and deductions for capital works.
- Expenses you incur while owning your property that you are unable to deduct may be included in the capital gains tax `cost base' (costs of ownership) when you sell the property.
- If you use your private home as a rental property, in most cases you need a market valuation when you start to rent it.
- The difference between a repair and an improvement can affect the amount of your tax deduction.
- Subdividing land has no immediate capital gains tax consequences if you retain ownership.
- Running a business from home can make you liable for some capital gains tax when you sell.
When selling:
- When you dispose of your property, you could be liable for capital gains tax.
- Your capital gain is the difference between your `cost base' (costs of ownership) and your `capital proceeds' (what you receive when you sell it).
- If you have owned your property for more than 12 months, you may be able to reduce your capital gain by the 50% discount.
- Simply transferring the property into someone else's name may mean you have to pay capital gains tax.
