Excited, emotional, stressed, overwhelmed — these are some of the many emotions you may experience when purchasing a new home. Whether you are buying an investment property or a home for your family to live in, there are numerous responsibilities that come with owning your own home, one of which is – you guessed it – the dreaded property tax. We’ve yet to meet anyone who loves taxes, but everyone can seem to agree that they’re an unavoidable part of our everyday lives.
Today, we look at everything you need to know about navigating taxes for your new property, so strap yourself in and read on to find out more!
So…What Exactly Is Property Tax?
If you’re new to home ownership, you may not even be familiar with the concept of property tax. Essentially, Australian property is taxed at both the state and council (local municipal) level. These taxes are payable by property owners (not renters). There are some tax deductions that can be made such as interest accrued on your home loan and depreciation, which you can keep track of using a property depreciation schedule, but more on that later.
Property Tax On Investment Properties
One important thing to know is that property taxes differ for both investment properties and properties purchased for private use or as a family home. Generally speaking, you pay land tax on your investment property when the total value of the property is equal to or exceeds the threshold of $250,000. Alongside investment properties, even commercial sites, rentals, and holiday homes will require you to pay land tax, regardless of whether or not they’re tenanted.
Tax Deductions For Investment Properties
Depreciation – All investment properties built after 16 September 1987 are eligible for tax deduction on building depreciation costs. You are able to claim these costs in portions over several years. This is known as a Capital Works deduction. In order to maximise the return on your investment, it is almost always recommended to seek the advice of a quantity surveyor who will be able to help you prepare a property depreciation schedule.
Maintenance – When it comes to managing an investment property, there are numerous things that homeowners need to manage in order to keep the property in pristine condition for renters. Thankfully, many of the expenses related to property upkeep are tax deductible as long as they are solely for maintenance purposes, and not an upgrade to the existing property.
Land Tax – As long as your investment property is rented out, you are entitled to claim the land tax as an investment property tax deduction.
Council Rates – Council rates include the cost of the rubbish collection and maintenance of the street your property is located on. If you are the one who is paying these rates (and not your tenant), you will be able to claim this as an investment property tax deduction.
“Most western jurisdictions allow for tax-deductible expenses. It’s often wise to speak to a qualified accountant / tax advisor to understand the nuances what is and isn’t allowable as there may be factors applicable to your specific situation,” comments Ruban Selvanayagam of fast house sale consultants Property Solvers.
Property Tax On Personal Homes
In terms of property tax for home purchases, you are exempt for land taxes if you are using your property as a home. However, it is important to note that the vacant residential land tax does apply to homes in and around metropolitan Melbourne that were vacant for more than six months in the preceding calendar year.
Calculating Property Tax
Knowing how much to pay for your property taxes can sometimes be a little confusing. Tons of calculators exist online, but the accuracy of them is yet to be decided on. As a rule of thumb, however, your taxes will depend on your property’s assessed value and local government’s tax.
Your property’s assessed value is often lower than the market value and does not equate to how much you paid for it (bummer, we know). A property assessor sets a value for your property each year and you will be able to find this on your city’s website for assessments, or on a recent tax bill.
When it comes to your local government’s tax, the number will vary depending on where you live. Generally speaking, the property tax rate in a capital city or similarly large city centre is often higher than one that is in a remote or rural area.
When Am I Required To Pay My Property Taxes?
Thankfully, most property taxes are already included in your monthly mortgage payment. If you decide to pay off your home loan, you will be expected to take on the responsibility of ensuring that your property taxes are paid on time. We highly recommend planning for this ahead and calculating what you owe in taxes each month. To ensure you don’t miss a payment, it is recommended that you pay your property taxes at the same time that you would have paid your mortgage. Payments can be made online and with ease by using the digital channels provided to you by your respective taxation office.
Failing to pay your property taxes may result in you losing your home and in the worst case scenario, your local government will have the right to sell your home in order to remunerate the money you owe in back taxes.
And there you have it — everything you need to know to navigate taxes as a new homeowner. Although this may all seem like a lot of information to swallow, we assure you that it all looks far more intimidating than it seems. By staying organised and on top of your payments, you’ll find that the dreaded property tax isn’t as scary as it’s made out to be.