Common Pitfalls in Property Investment Taxation

Property investment can be a smart way to build wealth, but it also comes with complex tax rules. Many investors unintentionally make mistakes that cost them refunds, trigger audits, or create future capital gains tax (CGT) issues. Understanding the tax implications of property ownership can save you thousands in the long run.

1. Claiming Deductions Incorrectly

❌ Overclaiming Repairs

• Repairs made after purchase that relate to pre-existing damage are considered capital improvements, not immediate deductions.
• Only genuine maintenance (e.g. fixing a leaking tap) is deductible in the year you incur it.

✅ Tip: Keep a clear record of what was done and when — and separate capital works from repairs.

2. Not Apportioning Expenses for Private Use

If you:

• Rent the property to family/friends below market value
• Use the property as a holiday home
• Live in it part of the year

You must apportion expenses based on private vs. income-producing use.

✅ Tip: Document availability and use periods with calendars and rental listings.

3. Forgetting Depreciation Claims

Many investors miss out on thousands in deductions by not claiming:

• Capital works (building structure)
• Plant and equipment (fixtures and fittings)

You usually need a Quantity Surveyor’s depreciation report to maximise your claim.

✅ Tip: The cost of the depreciation schedule itself is also tax deductible.

4. Misunderstanding the CGT Main Residence Exemption

You may qualify for a partial or full CGT exemption if the property was your main residence at any time. But:

• There are strict 6-year and 6-month rules
• You can only claim one main residence at a time
• CGT applies differently depending on whether the property was ever income-producing

✅ Tip: Always get advice before selling a property that was once your home.

5. Not Keeping Records for Future CGT

Even if you don’t plan to sell soon, you must keep:

• Purchase contracts and settlement statements
• Legal and stamp duty costs
• Renovation expenses
• Depreciation records

These are critical for calculating your cost base and reducing CGT when you sell.

6. Missing Interest and Borrowing Deductions

Interest on your investment loan is deductible — but not if:

• You use redraw funds for personal purposes
• You refinance for a private expense

You can also claim:

• Loan setup fees
• Lender’s mortgage insurance (amortised over 5 years)

7. Overlooking Land Tax and Other State Costs

Land tax rules vary by state and depend on the combined value of your investment properties.

✅ Tip: Check your state's land tax thresholds and ensure you’re registered where required.

Final Tip

Investment property tax rules can be tricky, and mistakes can lead to audits, amended returns, or missed opportunities. The ATO closely monitors rental property claims, especially overclaimed deductions or unreported capital gains.

Want to make sure your property investment is tax-smart?
We’ll help you structure your ownership, claim everything you’re entitled to, and stay ATO-compliant. Book a property tax review with our expert team today.

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