Tax Technicalities : Understanding Property Tax Obligations

Tax Technicalities - Understanding Property Tax Obligations

Understanding tax liability is something that every Australian resident should know, especially if planning to invest in property. Property taxes are usually levied by a governing body, whether is the national government, a federated state, or a local municipality, county, or regional government. In Australia, multiple jurisdictions can tax a single property as well.

Property taxes, and understanding them, can be quite difficult, and if you are new to property investment, procuring the services of property tax specialists can help you navigate the often murky waters of the types of properties that are assessed and the types of taxes that can be assessed to properties. At the centre of any property tax discussion, though, is residency, and how the different designations can impact tax liability.

Continue reading to learn more about your property taxes obligations so that you can better understand what is required of you.

Effect Of Residency

Residency plays a great role in determining whether property will be taxed in addition to the types of credits and offsets that are granted. First off, Australian tax authorities in cooperation with other participating countries have policies, which prevent double taxation, so in the event your designation places you in the position of being taxed twice the ruling authorities cooperate to ensure taxpayers are not overtaxed. As it relates to property taxes, there are three residency designations that apply here — those on temporary visas, Australian residents for tax purposes, and foreign resident for tax purposes.

Those people working in the country under temporary visas are considered a resident one day after the first six months of living in the country. They are considered temporary residents because they participate in the economic function of society (they are here for employment or education). As it relates to property taxes, only real estate in the country are taxable through the Division 768R of the Income Tax Investment Acts, which states that profits and gains are taxable but other investments are not. Only property in the country can be taxed, but taxpayers might not be eligible for other offsets.

An Australian resident for tax purposes, alternatively, has to declare all worldwide income. However, there are benefits to this in that they receive discounts when selling property. According to the Australian Tax Authority (ATO), residents stand to save up to 50 percent in taxes upon the sale of property.

Finally, a foreign resident for tax purposes is required to lodge an income tax return for property and are taxed under Division 855. This act taxes property held directly and indirectly by individuals worldwide. As stated previously, Australia participates in an agreement that does not double tax individuals. This is seen through the various offsets and credits applied to income generated from property under this designation.

Types Of Taxes

In Australia, there are four primary property classifications. Properties such as man-made buildings (permanent structures), personal property (movable property), intangible property (intellectual property), and real property (what is known as real estate). Properties are taxed at varying rates, and real property (commercial, residential, industrial, and vacant) is usually taxed based on classification.  

Taxes Levied

A variety of taxes can be levied on property depending on its classification and use. Capital gains tax, stamp duty, land tax, strata fees, and council rates and water taxes, in addition to special assessment taxes, are a few levied against property. In any case, while these taxes are not taxes directly related to generating property taxes, they are the types that individuals and businesses might be assessed for.

Paying Property Taxes

The root of paying taxes in Australia is related to residency classification, and there are benefits to each designation. While the tax laws are a maze to get through, resources through the government and online can help anyone navigate this system. The best way to guarantee your financial interests are safeguarded is to seek the advice of a tax specialist who can provide the most up-to-date information on the best route to take.