While you’re presented with various options that can accelerate the growth of your wealth, many individuals consider putting their money into properties since it’s a stable choice compared to other investments.
When it comes to investing in a property located in South Australia, there are a lot of factors that you need to be aware of to prevent your property investment from turning your financial portfolio red.
From the different property investment types to property investment tax benefits, here are the important things you need to know when investing in a property in the Festival State.
Table of Contents
- Property Investment Types in South Australia
- What is the Property Investment Tax?
- Stamp Duty Tax
- Income Tax
- Land Tax
- Capital Gains Tax
- Property Investment Tax Benefits
- Frequently Asked Questions
- What are the deductions that can help save tax on rental income?
- What other kinds of expenses can be claimed?
- Advertising and marketing costs for new tenants
- Bank fees and loan interest
- Body corporate fees and charges (excluding special levies)
- Landlords, building, contents, and public liability insurance
- Council rates
- Property management fees
- Depreciation
- Negative gearing
- Gardening costs
- Land tax
- Utility fees when it’s not paid by the tenant
- Pest control
- Repairs and maintenance
- Is stamp duty tax deductible?
- What are the available land tax waivers, exemptions, or relief?
- What does rental depreciation mean?
- Do I pay land tax if I am building a home?
- How is rental income taxed?
- Can I avoid paying capital gains tax on rental property?
- How long do I need to live in a house to avoid capital gains tax?
- Is it possible to claim capital works on a building?
- How is capital gains tax calculated?
- Can the interest paid on the property investment be tax-deductible?
- Final Thoughts
Property Investment Types in South Australia
Property Investment Types in SA are generally categorised into three different types–positively geared properties, negatively geared properties, and neutrally geared properties. Learn more about these three kinds below.
Positively geared property
A property is considered positively geared when it has positive cash flow. This typically means that your rental income, or, the amount of rent that your tenants pay you, is more than your interest repayments and other expenses that are property-related. A positive cash flow can also result in garnering additional tax from the profit.
Negatively geared property
A negatively geared property is when the profit you get from your rental is not higher than your interest repayments and other expenses related to your property. If your property is considered negatively geared, then you’re more likely to incur losses as an owner. However, owners of negatively geared properties can reverse this through capital appreciation, which is basically just the increase in the value of your investment.
Neutrally geared property
A property is considered to be neutrally geared when it has the same amount of money being paid in interest as rental income. No loss or income is generated because the rent income compensates for the expenses incurred. Technically speaking, this type of investment property doesn’t cost anything to own!
What is the Property Investment Tax?
The property investment tax varies on a couple of factors, such as the site’s value, land use, and ownership at a certain time of the month annually. The Valuer-General determines the value of your site because it’s part of a general valuation. The value can be determined using state-of-the-art valuation methods that include any related market evidence, sales, and other matters that can affect the property’s price.
The value of the site that’s utilized for property investment tax is the value of a piece of land only, including improvements such as excavating, draining, filling, grading or levelling of land, retaining walls, removal of sand, stone, rocks or soil, and other factors.
There are four kinds of taxes that you need to pay when investing in property in South Australia: stamp duty, income, land, and capital gains.
Stamp Duty Tax
Stamp duty tax is the tax that you’re obligated to pay the moment that the investment property you bought is transferred to you from the seller. Stamp duty tax can also be referred to as “transfer tax”. The tax rate will depend on the price of the property. Furthermore, a fixed amount will be charged to you, and also a proportion of the property price.
The cost of stamp duty tax in South Australia
Stamp duty tax cost will be calculated under two variables: the value of the property and the stamp duty payable. You can be qualified for an exemption depending on your situation. Here’s a simple table of the estimated stamp duty tax rates for different property values.
| Value of the property | Stamp duty payable |
| Does not surpass $12,000 | $1.00 for every $100 or part of $100 |
| Surpasses $12,000 but not $30,000 | $120 plus $2.00 for every $100 or part of $100 over $12,000 |
| Surpasses $30,000 but not $50,000 | $480 plus $3.00 for every $100 or part of $100 over $30,000 |
| Surpasses $50,000 but not $100,000 | $1,080 plus $3.50 for every $100 or part of $100 over $50,000 |
| Surpasses $100,000 but not $200,000 | $2,830 plus $4.00 for every $100 or part of $100 over $100,000 |
| Surpasses $200,000 but not $250,000 | $6,830 plus $4.25 for every $100 or part of $100 over $200,000 |
| Surpasses $250,000 but not $300,000 | $8,955 plus $4.75 for every $100 or part of $100 over $250,000 |
| Surpasses $300,000 but not $500,000 | $11,330 plus $5.00 for every $100 or part of $100 over $300,000 |
| Surpasses $500,000 | $21,330 plus $5.50 for every $100 or part of $100 over $500,000 |
Income Tax
Naturally, the income you’ve accumulated from your property will be subjected to a specific amount of income tax. Every year, your investment property’s income tax is to be added along with your other forms of income and evaluated together in your yearly tax return.
If your property is incurring more losses than profit (AKA, negatively geared), then you can subtract the loss from the income you produce. This means that you’ll be acquiring an income tax amount that’s reduced, which is why property investors prefer negative gearing as their investing strategy instead of positive gearing.
On the brighter side, the Australian Tax Office (ATO) enables investors to claim multiple tax deductions as long as they can show documentation or proof that the property is generating income.
Land Tax
If you buy a plot of vacant land or property from a previous owner who considered it an investment property, you may be required to pay a percentage of the property’s land tax during the settlement. The land tax adjustment will be prepared by the taxpayer representative (for example, a conveyancer) that you have made responsible for the property’s transfer.
You must pay land tax every year for each property you own in South Australia, where the overall value of the properties you own exceeds the tax-free threshold unless there’s a waiver or exemption that applies.
Capital Gains Tax
According to the Australian Tax Office (ATO), when you earn profit from selling assets, in this case, property, then the type of tax you are to pay is called the capital gains tax.
Despite its name, the capital gains tax is still part of your income tax which means that you are to quantify the capital losses and capital gains in your income tax return. The tax amount that you need to pay will start to increase if you have capital gains.
In order to determine how much capital gains tax you need to pay for your property, you may refer to the chart below.
Property Investment Tax Benefits
When investing in a property in South Australia, there will be property investment tax benefits present, so it’s important to ensure that you’re aware of these to maximise your returns.
Some of the property investment tax benefits include not having to pay land tax when it is considered your family home or your initial place of residence. Additionally, you won’t need to pay capital gains tax for the sale of your property for as long as it continues to be the place of residence of the owners during the ownership period.
However, keep in mind that if you plan to buy a property for investment purposes, you are typically responsible for land tax payment and capital gains tax payment should you decide to put it up for sale for a price higher than the initial one.
Additionally, as a natural person, you can also be eligible for a First Home Owners’ Grant and also the ability to negative gear.
It is highly encouraged to speak with your trusted accountant or financial planner beforehand to determine your grant eligibility and tax liability more accurately.
Frequently Asked Questions
Now that you have a brief understanding of property investment tax in South Australia, below are some commonly asked questions that you might find yourself looking for the answer to.
What are the deductions that can help save tax on rental income?
According to the Australian Tax Office, investment expenses can be claimed as tax deductions when they are used on parts of the house that are considered an investment property. Examples of the most common kinds of expenses that one can claim are borrowing expenses, management/maintenance costs, and depreciation. Obviously, you don’t want to be claiming deductions on things you haven’t purchased, such as tenants paying for the utility bill or kinds of improvements, this is not allowed.
Maintenance and management costs that are allowed to be deducted are the following:
- Advertising and marketing costs for new tenants
- Bank fees and loan interest
- Body corporate fees and charges (excluding special levies)
- Landlords, building, contents, and public liability insurance
- Council rates
- Property management fees
- Depreciation
- Negative gearing
- Gardening costs
- Land tax
- Utility fees when it’s not paid for by the tenant
- Pest control
- Repairs and maintenance
Borrowing costs, in the meantime, will include interest in your investment home financing but not necessarily the principal amount to be repaid. Other borrowing fees are the following:
- Lender’s mortgage insurance, if applicable
- Loan establishment costs
- Title search costs
- Mortgage broker costs
- Stamp duty charged on mortgage
You can also file a claim for depreciation losses on newly purchased items, like appliances, carpets and blinds, water systems, and furniture. These deductions will help you save a significant amount of money on your investment properties, so be sure to remember them.
Furthermore, the list mentioned is not everything though, for better and more accurate information, check out Australia Tax Office’s page regarding investment property deductions. To save time and energy, hiring a personal and reliable accountant can be extremely worth it, especially if you’re having difficulty keeping track of your deductions.
What other kinds of expenses can be claimed?
Here are the different costs that can be claimed when it comes to property investment tax in South Australia.
Advertising and marketing costs for new tenants
It’s standard protocol for your property manager to charge you for advertising or marketing your property for lease. Whether you or your agent marketed your properly online, through brochures or other forms of print media, and even signs, you can claim these marketing costs against your income during the same year you spent them.
Bank fees and loan interest
If there is a principal and interest loan that’s opposed to your investment property, deducting the principal repayments is not possible, however, there’s another way to go about this–you can file for a tax deduction for any interest accumulated on your standard repayments as an investment expense.
Body corporate fees and charges (excluding special levies)
If your investment property is on a strata title, which means that the title is typically related to townhouses or home units with commercial uses like warehouses or shops, then it’s possible for you to claim the price of body corporate fees.
Some examples are garden expenses and common area maintenance, along with building public liability and insurance.
Landlords, building, contents, and public liability insurance
If your investment property has insurance such as contents insurance, building insurance, landlord insurance, or public liability insurance. In that case, you can file a claim for the cost of your tax return.
When it comes to covering tenant-related risks like loss of rental income or damage to the contents of the building, there is landlord insurance for that.
Council rates
Council rates are one of the main ways South Australian councils can provide funding for multiple kinds of services and facilities for the people in their community. These rates can be subtracted in the same year that they were paid, however, you’re only able to file for a claim only during the times that the property was being rented.
To clarify, let’s say that if your investment property was only occupied for 193 days of the year, then you’re only allowed to file a claim for your rates during those times.
This means that you will be able to claim around 52.88% (193/365) of the entire amount that you paid in council rates for your property that year.
Property management fees
A great real estate agent or property manager helps you achieve the best results from your investment property, with the added bonus of tax-deductible fees.
The fees of any other expert, including a valuer, depreciation expert, accountant, landscape designer, or interior designer, are also tax-deductible.
Depreciation
To claim depreciation, you are required to prepare a depreciation schedule which is priced at around $600-$700, do take note that this fee is also tax-deductible.
According to the Australian Tax Office (ATO), a depreciating asset is any asset that doesn’t have a long lifespan and is expected to reasonably decline in value throughout the course of time that it’s being used.
Negative gearing
Negative gearing is a kind of tax strategy that Australians have used for many years to make the idea of becoming investment property owners much more attainable and bankable.
To make things simpler, negative gearing occurs the moment you own an asset that will cost much more compared to what you’re currently earning, which in this case is the property.
Let’s take a look at this example; the interest you’re paying for your mortgage and all other related expenses in your property is equivalent to more than the earnings or income from that property, then this means you are incurring a financial loss, thus making you eligible to claim this as a tax deduction.
Gardening costs
Owners of investment properties can file a claim for the upkeep and replacement of structures and plans as an instant deduction.
Nonetheless, you can’t claim the cost of new plants or changes immediately that increase the property’s total value because these will be regarded as “improvements.”
Land tax
If the dwelling on your investment property is rented out, then you can claim land tax as a deduction. Some state governments offer land tax discounts for landlords who provide rent relief for their tenants impacted by Covid-19
Utility fees when it’s not paid by the tenant
Generally speaking, you can claim the basic costs for any gas, water, or electricity supply expenses you are to pay during tenancies.
It’s actually common for the tenant to pay for all these fees, however, this is useful for those “what ifs” scenarios, such as a gap between tenancies. In this respect, any supply or usage charges that pop up between tenants can be legally reduced from any sort of income.
Pest control
In case you didn’t know, professional pest controls are tax-deductible, and either you or your tenant can file a claim for this expense, depending on who’s responsible for the payment.
Repairs and maintenance
Repairs and maintenance can be claimed as a tax deduction in the same income year if the repairs result from wear and tear.
Is stamp duty tax deductible?
The expenses that come with purchasing your property, such as stamp duty and legal fees, can be claimed only when there’s any capital gain determined once the property is sold. It’s always preferred to seek advice from qualified professionals such as accountants or tax agents when it comes to making a claim for rental property expenses.
What are the available land tax waivers, exemptions, or relief?
There are many kinds of land tax exemptions, waivers, or reliefs that are obtainable. An example would be that you are actually qualified for land tax exemption if you own the property and live in it as well, however, this would still depend on whether or not you meet the eligibility criteria.
What does rental depreciation mean?
As a landlord, you can also declare deductions for items that are considered ‘wear and tear’ on the premises of your investment property.
There are depreciation assets: curtains, carpets, air conditioning, hot water systems, and kitchen appliances. These assets are generally items that are separately identifiable and excluded from the property’s structure, meaning that these aren’t permanent or meant to last incredibly long and should be replaced after a relatively short time.
The adjustments made in 2017 mean that the depreciation on assets is only valid if the item purchased is brand new or in a newly built or significantly renovated property.
The claim for depreciation cannot be used for items that are secondhand. For example, if you were to move into a property for a period of time before you decide to rent it out, then the items cannot be claimed since it has already been used.
The Australian Tax Office (ATO) has set the standard of the items’ life spans and how much of it can be claimed. For instance, curtains have a typical lifespan of 10 years. Investors should draw a conclusion with estimates that are reasonable and at the same time, provide proof of how it came to be that way.
Assets that cost not more than $300, like a toaster or kettle, and aren’t part of a set of assets but were utilized in helping the property get leased, then there’s a chance that it can be eligible for a deduction immediately.
Figuring out what exactly to claim can be a little difficult, especially since you want to ensure you’re getting all the benefits laid out for your situation. Hiring a professional quantity surveyor can bring more clarity by laying out a tax depreciation schedule tailored to your investment property. Not to mention, their fees are also deductible.
Do I pay land tax if I am building a home?
If you are currently building your home and the construction is still ongoing by the time the land tax is calculated on June 30, you may find yourself responsible for paying for land tax. However, you can try to apply for an exemption, given that you are moving into the property as your initial place of residence before the 30th of June.
How is rental income taxed?
Owners of rental properties are aware that part of their rental income is declared taxable. So how is rental income tax assessed? Well, according to the Australian Tax Office (ATO), your rental income is taxed at your marginal tax rate and needs to be declared on your income tax return.
To simplify things, here is a table of the marginal tax rates for 2021-22 so you can determine how much tax you need to pay depending on your rental income.
| Tax on this income | Taxable income |
| Zero | Zero to $18,200 |
| 19 cents for each $1 over $18,200 | $18,201 up to $45,000 |
| $5,092 plus 35.2 cents for each $1 over $45,000 | $45,001 up to $120,000 |
| $29,467 plus 37 cents for each $1 over $120,000 | $120,001 up to $180,000 |
| $51,667 plus 45 cents for each $1 over $180,000 | $180,001 and above |
Can I avoid paying capital gains tax on rental property?
Even though the sale of your initial place of residence or family home is typically tax-free, every time you make a sale on an investment property, it’s required for you to pay capital gains tax on the transaction.
When it comes to rentals, the property’s capital gains tax becomes valid the moment you sign the contract of sale. You need to pronounce the loss or profit incurred on the sale on your tax return during the same year that the sale took place.
How long do I need to live in a house to avoid capital gains tax?
In terms of CGT, no one is actually exempt from paying it, but there are ways to minimise the amount you’re paying for. To do this, you must hold your property investment for at least a year. If you remain the owner for more than a year, then you can be qualified to apply for 50% of your gross capital gain figure to compute your net capital gains for your tax return. This results in you only paying for capital gains tax on half of the gross capital gains value.
Is it possible to claim capital works on a building?
Any expenses incurred while building the property, like structural improvements or extensions, can be claimed. Some examples are adding a pergola, building a fence or a retaining wall, and even laying a new driveway.
According to the Australian Tax Office, the deduction rates for these capital works typically range between 2.5 to 4%, distributed over the course of 40 or 25 years, respectively.
People who invest can claim only the rental property costs that were built after 1985 as well as those that are for rent. The construction expenditure includes surveying fees, architect fees, foundation excavation expenses, building permit costs, and other associated costs.
How is capital gains tax calculated?
Capital gains tax is only applied to properties that were bought after September 1985. When it comes to properties that were purchased after October 1999, it is possible to receive a discount of up to 50% on the capital gain calculated for tax purposes. The eligibility of the discount will have to depend on the structure of the ownership of the investment. For more insight, you can contact a professional tax accountant to see the bigger picture.
On the topic of calculating capital gains tax, the tax office will look at the specific date you entered to buy the contract as the official date of purchase and not the settlement date. Be sure to look at the calendar before you decide to sell since the discount is only applied when you have been the property owner for at least 12 months.
Capital gains tax can be quite complicated, especially when it’s time to calculate them. There are many free resources online, but they can only give you an estimate, so make sure that you get solid advice from your accountant when it comes to putting your investment up for sale.
Can the interest paid on the property investment be tax-deductible?
One of the biggest deductions for investors is the interest on money borrowed to buy the rental property or carry out repairs and renovations.
One of the largest deductions for investors is the interest on money loaned to purchase the rental property or execute renovations and repairs. The standard claim for loan interest obtained by the Australian Tax Office (ATO) is around $10,000. The properties are only deemed eligible if they have been leased or are ready to be rented out in that financial year.
The interest becomes invalid for claiming if any part of the loan was allocated for personal reasons like buying a car or going on a vacation. It must only be used for one’s investment property and not anything else. Keeping the accounts not together is highly recommended to avoid any confusion with the funds once tax time arrives.
It is quite common for property investors to use a loan that focuses on interest only to take full advantage of their deductions.
Final Thoughts
Learning about property investment tax, in general, can be quite overwhelming, especially if it’s your first time. However, if you’re a property investment owner or plan to be one, it’s crucial for you to know everything about it. To make things easier for you, Zanda Wealth Mortgage Brokers has a team of professional and reliable brokers that are there to help you.
Get started and book your strategy session with us today!
