The ‘hidden taxes’ of owning property

Most people when they decide to buy an investment property only look at the headline costs of the purchase (that is, the price of the home and mortgage repayments). However, there are significant ongoing costs associated with owning an investment property, such as the property-related taxes annually levied by the state and local governments.

These property taxes can add thousands of dollars each year to the holding costs of every property an investor owns.

The importance of these taxes has been highlighted by recent ABS figures, which show that last financial year state and local governments throughout Australia collected more than $40 billion in property taxes.

Over the past decade property taxes have jumped by nearly 70 per cent from $24.23 billion to $40.85 billion.

They have been generally rising faster than the rate of inflation and as a result can eat into the cash flow of property investors.

This is particularly the case if an investor has several investment properties and is faced with multiple state and local government tax bills each year.

To help alleviate this burden, more Australians are taking advantage of legitimate tax benefits that flow from investing in property, such as depreciation.

This why June and July are the busiest months of the year for tax depreciation specialists, as many property investors obtain tax depreciation reports for their investment properties to significantly reduce their taxable income.

Just one tax depreciation report for an investment property can generate thousands of dollars in potential savings in tax each year.

Over coming weeks, a large number of investors will making the decision to buy investment properties throughout Australia to coincide with this period.

For people in Australia who buy an investment property, they have to understand that they must undertake a tax depreciation schedule as soon as possible after settlement so that it complies with ATO guidelines.

For the initial cost of the tax depreciation report – which is tax deductible – clients can achieve thousands of dollars in tax benefits each year from their investment by legitimately claiming their full depreciation allowances.

Even an older-style home can also qualify for substantial tax depreciation benefits if a depreciation schedule is undertaken around the time of settlement.

To protect their interests and ensure that they select a company that is fully compliant with ATO rulings, property investors should select a company that is a member of The Australian Institute of Quantity Surveyors (AIQS).