Melbourne Property Investment Criteria

We can give general advice on property and tax; however, we will refer you to the appropriate professionals for your specific circumstances. Below is the basic information you need to be aware of.

Negative Gearing - Most Melbourne properties purchased in today's market are cash flow negative. What this means, in simple terms, is the rental income does not cover all the expenses and cash is required from other sources to keep the investment afloat. The loss is tax deductible and can be used to offset your tax liability from other income sources. To improve your cashflow, the Tax Office may allow you to vary the amount of tax withheld from your salary by completing a PAYG withholding variation application form. This permits you to receive the tax benefit in your regular pay cycle. Please ensure you see a property taxation specialist, and we can recommend someone if you don't use one already.

In order for a negatively investment to be a good investment, the capital appreciation on the property needs to be greater than the negatively geared loss. Therefore, choosing the optimum property investment is critical – gone are the days when just any property investment would do.

Positive Cash Flow - As rents rise and your finance costs remain steady, your property will become cash flow positive. This is where your rent exceeds your outgoings, and, in this instance, you need to work out a strategy to minimise your tax. Again, speaking to a property taxation specialist is critical.

Depreciation of Fixtures and Fittings - This is something that is overlooked by many investors. The ATO permits property investors to depreciate fixtures and fittings over a period of time. You receive incremental tax benefits over the account life of the fixtures and fittings, which reduces your tax liability. To receive this benefit, a deprecation schedule needs to be drawn up by a quantity surveyor. This needs to be submitted to your accountant at the time you do your tax. The fee paid to the quantity surveyor should be tax deductible. We have a number of quantity surveyors we can recommend.

Advocates Fees should be tax deductible, when and if the property is sold. The advocacy fee is part of the cost base of the property and therefore is used to reduce any capital gains tax liability on the property.

Legal fees should be tax deductible, when and if the property is sold. The legal fees are part of the cost base of the property and therefore is used to reduce any capital gains tax liability on the property.

Stamp Duty is payable on all property purchased in Victoria. Please see the link to the State Revenue Office for further information http://www.sro.vic.gov.au. Stamp duty is also added to the cost base of the property when determining the gain on disposal.

A self managed superannuation fund ("SMSF") is a superannuation fund which can provide the members of the fund with a greater control and choice over their investments providing security and peace of mind. To hold direct property within your superannuation portfolio you must create a SMSF.

Please seek your own independent professional advice before establishing a SMSF or borrowing / acquiring an asset.

This information is current as of 1 August 2010.