Tax Concessions for Property Investors

Dated: June 2004

At the present time Australian taxation laws allow investors to negatively gear investment properties, offsetting losses arising from rental activities against other income. At the same time a 50% capital gains discount is granted where an individual holds an investment property for more than twelve months and makes a gain on its disposal.

The Taxation Office is warning investors that the 50% discount may be disallowed when:

• There was never an intention or prospect of making a rental profit and/or
• The property is only being held for the 12 months to access the capital gains discount.

What will be paramount in determining the tax treatment of any gain will be the taxpayer’s intention at the time of acquisition. Was the property purchased for the purpose of providing a return on the investment, based on future rents, or was it acquired with the aim, of making a quick gain on the sale of the property? If the latter is the case then the gain may be considered to be normal income and be taxed at marginal rates.

The Taxation Office may also conceivably apply this logic to other investments, such as shares in the future.