In recent years the Australian Taxation Office (ATO) have decided to pay more attention on the humble property investor, therefore it is important that we answer an important question that has been on the mind of many individuals – Are you able to claim buyer’s agent fees as a tax deduction?
Wise Real Estate Advice Senior buyer’s advocate, Mark Ribarsky, addresses that “property buyers often become confused when it comes down to investment properties, and the involvement a buyer’s advocate has when choosing an appropriate property manager”.
FAQ’s on tax deduction when purchasing a property:
The following question can be broken down into yes and no.
If a buyer’s agent has decided to help you purchase your dream house that you wish to live in, then the fee is not tax deductible. The entire process of the agent purchasing the property and negotiating a contract will not be included.
On the other hand, if a buyer’s advocate has helped you purchase an investment property, then their fees can be created as a part of a cost base for capital gains reasons. It might not reduce your tax within the next 12 months, however when you decide to sell your investment property you will pay a reduced amount on capital gains tax. According the ATO, ‘the cost base of a capital gains tax asset is generally the cost of the asset when you bought it plus other costs that are associated with holding, obtaining and disposing of an asset’. For example, solicitor expenses, borrowing fees, auction fees, property management fees, buyer’s agent fees and stamp duty.
If a buyer’s agent selects a property manager, can this fee be claimed as a tax expense?
The simple answer presented by the ATO is no. The main role of a buyer’s advocate is to undertake the entire process of purchasing a property, however it is quite common for them to offer ongoing property management services. If they do not offer the service, it is still common for the agent to select a property manager free of charge, in order to maintain a competitive advantage over its competitors. Regardless if the property is a place where you want to live or an investment property, the agent will charge the same fee regardless if the buyer does not require the service of a property manager.
However, if a buyer’s advocate decides to charge a particular fee such as the time spent on acquiring a property manager or to include the total fee on the invoice, then you could potentially argue a case on the amount tax deductible.
What else could I potentially claim on my investment property to reduce the amount of tax payable?
- Assets that depreciate such as fridges, washing machines, fridges, curtains, carpet and building materials, can all be used to reduce the amount of tax paid. However, in order to do this accurately you will need to acquire a quantity surveyor who will write up a plan and a depreciation schedule to maximise the amount that is left in your pocket.
- The interest that you need to pay on your mortgage can be claimed back as a tax deduction. If you decide to take out a loan to buy assets for your property or to renovate your property, the interest paid on the loan can also be claimed as a tax deduction. However, if you decide to live in the property, then you will not be able to claim interest in order to reduce your tax.
- If you decide to renovate or construct a building, or to make improvements to surrounding properties, then this can result in more money in your bank account.
- However, it is important to consult a professional such as an accountant or a financial advisor to maximise the amount of tax that can be deductable.
Australian Taxation Office (ATO)
In regard to the tax payable for buying/selling a house or an investment property, the ATO have provided the following topics:
- ATO ID 2003/361: Income tax, Capital gain tax: cost base – consultant’s fees. That buyer’s agent fees acquired in the process of identifying and selecting a property does form part of the second element of the cost base.
- ATO ID 2009/9: Income Tax, Deductibility of expenses: property buyer’s agents fee, confirms that the expenses acquired in the process of identifying, selecting and negotiating of a contract to purchase a property are not tax deductible.
For more advice on taxation purposes, contact the Australian Taxation Office by:
- Phone: 13 28 65
- Website: https://www.ato.gov.au