6. Accountability

Capital Gains Tax

Capital Gains Tax or ordinary income tax may apply when you sell an investment property for more than you paid for it. Where Capital Gains Tax applies, the amount due is calculated on the difference between the purchase price and the sale price (certain concessions may be available however, such as a 50% discount for individual investors). There are complex rules surrounding the calculation of capital gains tax, and again we recommend that you speak to your own accountant on this issue.

For example, if you purchased an investment property in 2004 for $100,000 and sold it one year later for $110,000, you would have made a profit of $10,000 (simplified example, not taking into account other income and expense details). But, allowing for a 50% discount for individuals, you would only have to pay tax on half the total gain (ie $5,000). This is the amount on which your Capital Gains Tax would be calculated.

Buying and selling costs

The expenses incurred in buying and selling your investment property, such as the purchase cost of the property, conveyancing costs, advertising expenses, etc. cannot be claimed as a deduction against the rental income from the property.

However, such costs may be taken into account when you sell the property, to calculate any capital gain or loss on the sale.

Record keeping

You are required by law to keep all records relating to your investment property, both income and deductions, for a period of 5 years.

You must also keep records relating to the purchase and sale of the property for 5 years after the sale of the property. Although you do not have to forward these records to the Taxation Office with your Tax Return, you are required by law to keep them in case the Tax Office asks to see them.