Depending on your financial situation and goals, tax deductions could be a key component of your property investment strategy. More than simply being a side benefit, being able to reduce your taxable income can significantly supplement your returns. This is particularly true for negatively geared properties, which rely heavily on tax breaks to make the numbers work.
With this in mind, it is understandable that many investors actively look to maximise the expenses that they can claim. But while this is an entirely reasonable approach, it is critical that you do not overstate or misreport your expenses. And an important part of this is understanding which expenses count as valid tax deductions, and which do not.
Here we take a closer look at an expense we are very familiar with – buyers agent fees. This is a cost many investors are happy to pay but are not sure how to treat come tax time.
The short answer is no, when buying an investment property, your buyers agent fees are not a claimable expense. This means they cannot be used to reduce your taxable income for the year that you buy the property. However, it does not mean that they do not provide any tax benefit – you just need to look longer term.
While buyers agent fees cannot be claimed immediately, they are included in the calculation of your investment property’s cost base. This is the amount that you have paid to purchase and maintain the property, minus any expenses you have already claimed. It is also the basis for calculating capital gains tax on any capital growth you realise from the property.
This means that your buyers agent’s fees will be included in tax calculations when you sell the property. Specifically, they will reduce the amount of the profits from the sale that you need to pay tax on. Depending on your financial situation – and the amount you paid your buyers agent – this could mean thousands of dollars in savings.
Even if you sell your investment property for a loss, your buyers agent fees will still be included in tax calculations. In this situation, they would increase the amount of the capital loss you made on the property. This can then be used to offset future capital gains, including in future tax years.
It is important to note here that this only applies to buyers agent fees related to an investment property purchase. If you engage a buyers agent to help you buy your own home, these cannot be claimed at any time. This is because the property did not produce income, so no related costs are considered tax deductible.
The good news is, while you cannot claim your buyers agent fees, a range of other costs are tax deductible. This includes:
If you have any questions about the tax implications of your investment property, we suggest you speak to your accountant. They should be able to advise what expenses you can claim and any additional tax you will need to pay. They should also be able to recommend strategies to minimise your tax responsibilities, if that is important to you.
If you do not have an accountant you work with regularly, we strongly recommend adding one to your investment team. In addition to making sure you meet all your financial obligations, they should be able to suggest ways to maximise your returns. A good accountant should also be comfortable working closely with your financial adviser and buyers agent to help you grow your portfolio.
Finally, if you need help planning the next step on your property investment journey, give Search Party Property a call. Our experienced team specialises in helping investors from a wide range of backgrounds build wealth and secure their financial future through property. So, whether you want to add to your portfolio, or make the most of your current investments, we can help.