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Can You Claim Agent Fees When Selling Investment Property?

 

Selling an investment property involves not only navigating the property market but also understanding the tax implications associated with the process. One common question that arises is whether you can claim agent fees as deductions when selling an investment property. In this article, we'll delve into the specifics of claiming agent fees and unpack the factors that determine their deductibility.


Understanding Agent Fees


When you decide to sell an investment property, you often enlist the services of a real estate agent. These professionals bring their expertise to the table, help you market the property, connect with potential buyers and negotiate the terms of the sale. However, these services come at a cost, commonly referred to as agent fees or commissions.

Agent fees can vary based on the location of the property, the prevailing real estate market conditions and the specifics of the agent's services. These fees are generally calculated as a percentage of the property's sale price and can range from around 1.5% to 3% or more.


Deductibility Of Agent Fees


In Australia, the deductibility of agent fees when selling an investment property depends on the purpose of the property, the nature of the fees and the timing of the expenses. Generally, you can claim agent fees as deductions, but it's essential to understand the specific circumstances under which these deductions apply.


Revenue Vs. Capital Expense


The Australian Taxation Office (ATO) differentiates between revenue expenses and capital expenses. While revenue expenses are typically deductible in the year they are incurred, capital expenses are added to the cost base of the property and can impact capital gains tax when you eventually sell the property.

Agent fees are generally considered to be capital expenses and as such, they are added to the cost base of the property and can reduce your capital gains tax liability when you sell.

 

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Investment Property


To claim deductions for agent fees, the property must be an
investment property rather than your primary residence. If you're selling your primary residence, agent fees are generally not deductible.


Active Management


Agent fees incurred for active property management, such as advertising, finding tenants and arranging repairs for your investment property, may be immediately deductible as revenue expenses. However, fees related to selling the property itself are usually considered capital expenses and are added to the property's cost base.


Solely For Earning Rental Income


If you're selling an investment property that you've been renting out, you can generally claim agent fees as capital expenses. These fees contribute to reducing your capital gains tax liability when you sell the property.


Impact On Capital Gains Tax


The Capital Gains Tax (CGT) is a key consideration when selling an investment property in Australia. Agent fees, being part of the property's cost base, can have a significant impact on the amount of CGT you'll pay.

To calculate your capital gains, subtract the property's cost base from the sale price. The higher the cost base, the lower the capital gains and consequently, the lower the CGT liability. Expenses, such as agent fees, legal fees and stamp duty, are added to the cost base which reduces your overall tax burden.

For instance, if you purchased an investment property for $500 000 and incurred $15 000 in agent fees and $10 000 in other selling expenses, your cost base would be $500 000 + $15 000 + $10 000 = $525 000. If you sell the property for $600 000, your capital gains would be $600 000 - $525 000 = $75 000.

 

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When selling an investment property, agent fees are generally considered capital expenses that contribute to the property's cost base. This can have a positive impact on reducing your capital gains tax liability when you sell the property. It's important to keep updated records of all expenses during the sale process to accurately calculate your capital gains tax. 

Seek advice from a qualified tax professional or accountant before making any decisions regarding claiming deductions for agent fees. By understanding the rules surrounding deductibility and capital gains tax, you can make informed decisions that comply with Australian tax laws and align with your financial goals. 

 

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Published on 1st of September 2023 by Davina Deluao
Davina Deluao
Davina Deluao

Davina graduated from Swinburne University in 2018 with a Bachelor of Arts, majoring in Journalism. Through travelling and studying abroad in NYC and LA, her interests in property and design grew and became a strong pursuit. Davina has been writing for iBuildNew Group since 2019.

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