Tax incentives for property owners: How to maximise your savings.
Property ownership is costly, but tax incentives ease the burden. The Australian government supports homeowners, investors, and landlords, promoting savings and efficiency.
Owning property can be a big financial responsibility, however, there are tax benefits that can help homeowners, investors, and landlords. The Australian government provides various incentives to encourage property investment, homeownership, and energy-efficient improvements. Understanding these incentives can help property owners make informed financial decisions and maximise their savings.
“It really is worth investigating the tax incentives that are available for property owners – whether you are in your own home or an investment property, there are many government schemes that can help put a little back in your pocket” says Andrew Robinson, New South Wales & Australian Capital Territory Head of State Belle Property.
- Negative gearing
One of the most significant tax advantages for property investors in Australia is negative gearing. This occurs when the expenses associated with owning and managing an investment property (such as mortgage interest, maintenance, and depreciation) exceed the rental income. Property owners can deduct this loss from their taxable income, effectively reducing the amount of tax they owe. Negative gearing is a popular strategy for investors looking to offset rental losses against their overall income.
- Capital gains tax (CGT) discount
When selling an investment property in Australia, owners may be liable for Capital Gains Tax (CGT). However, individuals who hold a property for more than 12 months before selling are eligible for a 50% CGT discount. This means that only half of the capital gain is added to their taxable income. This incentive encourages long-term property investment and provides significant tax savings for investors.
- Depreciation deductions
Property investors can also benefit from depreciation deductions, which allow them to claim the loss of value of certain assets over time. Depreciation is divided into two categories:
- Capital Works Deductions: Covers the cost of construction and renovations on properties built after 16 September 1987. Owners can claim 2.5% of the construction cost per year for up to 40 years.
- Plant and Equipment Depreciation: Includes assets such as appliances, carpets, and air-conditioning units, which lose value over time.
Investors can claim these deductions by obtaining a tax depreciation schedule from a qualified quantity surveyor, helping to reduce taxable income.
- Principal place of residence (PPR) exemption
Homeowners who live in their property as their primary residence can benefit from the Principal Place of Residence (PPR) exemption, which eliminates CGT when selling their home. This means that any profit made from the sale of the property is not subject to tax, making it a significant incentive for owner-occupiers.
- First home owner grant (FHOG) and stamp duty concessions
First-time buyers may be eligible for the First Home Owner Grant (FHOG), which provides financial assistance for purchasing or building a new home. The amount and eligibility criteria vary by state and territory. Additionally, first-home buyers may qualify for stamp duty concessions or exemptions, further reducing the costs associated with purchasing a property.
- Tax benefits for energy-efficient upgrades
Property owners making energy-efficient upgrades, such as installing solar panels, energy-efficient heating systems, or insulation, may be eligible for rebates and tax incentives. Some programs, like the Small-scale Renewable Energy Scheme (SRES), provide financial support for installing renewable energy systems. These incentives help homeowners save on energy costs while also benefiting from tax deductions.
What does this all mean for you?
Tax incentives for property owners in Australia provide substantial savings, whether you’re an investor using negative gearing and depreciation deductions or a homeowner benefiting from the Principal Place of Residence exemption. Understanding these benefits and consulting a tax professional can help you make the most of available deductions, reduce your tax burden, and improve your financial position.
For further information or to connect to a trusted property professional reach out to your local Belle Property office.