Investment Properties - things to do, items to keep

When purchasing a property for investment purposes or changing the status of your main residence to an investment property there are several important steps you should take and documents you should keep to facilitate claiming deductible expenses and calculating any capital gains tax liability in the future.

Purchase of property

Information to put on file:

• A copy of the front page of the purchase contract
• A copy of the settlement sheet
• Details of the deposit paid
• Details of any stamp duty paid
• Details of any legal / search fees paid
• Details of any buying agent fees paid

Things to do:

• Get a depreciation schedule written
  - Depending on the age of the construction and the purchase date of the fixed contents of the property, depreciation will form part of the overall deductions of an investment property
  - The cost of construction of the building can be depreciated at the rate of 2.5% per year over 40 years if applicable
  - The cost of the fixed contents of the building can also be depreciated depending on the purchase date and the expected life of each asset
  - The cost of having a depreciation schedule written is tax deductible
  - To have a depreciation schedule written, contact BMT at www.bmtqs.com.au
• Take out a landlord’s insurance policy
  - This will cover you for items such as tenant damage, loss of rent, legal fees with regard to tenant disputes

Transfer of residence to investment property

Information to put on file:

• A copy of the valuation of the property at the point of transfer from main residence to investment property

Things to do:

• Get a valuation of the property at the point of transfer from main residence to investment property
  - Having this valuation at the point of change in status may assist in the calculation of any capital gains amount at the point of sale
• Take advice regarding any outstanding mortgage amount with reference to redraw or advance payment amounts
  - The interest charged on the outstanding mortgage amount at the point of transfer to an investment property will become deductible
  - Its important that you take advice as to adjusting any redraw amounts prior to transitioning to ensure maximum interest deductibility

Ongoing record keeping

Things to do:

• Record income and expense details for your investment property
  - If you use a managing agent a lot of this detail will be provided in an annual statement
  - You can refer to our checklist here
  - You can download our spreadsheet here to record your income and expense detail
• Expenses that may be deductible are:
  - Interest on loans
  - Bank fees
  - Strata / Body Corporate fees
  - Repairs and Maintenance
  - Landlords insurance
  - Property insurance
  - Agents fees
  - Council rates
  - Water rates
  - Advertising
  - Cleaning
  - Gardening / mowing
  - Land tax
  - Depreciation
• Report your investment property income and expenses as part of your personal, partnership, trust or company tax return

Sale of property

Information to put on file:

• A copy of the front page of the sale contract
• A copy of the settlement sheet
• Details of any legal fees paid
• Details of any selling agent fees paid
• Details of any advertising paid
• Any other expenses related to the sale of the property

Things to do:

• Report your investment property income and expenses for the full or part year as part of your personal, partnership, trust or company tax return
• Calculate any capital gains tax payable
  - If you have sold your investment property for greater than the amount paid on purchase you will have a capital gain and, in the absence of any carried forward capital losses, you may have to pay capital gains tax
• Report your capital gain income as part of your personal, partnership, trust or company tax return

Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.