Can You Claim a Buyer’s Agent’s Fee as a Tax Deduction?
We open up the discussion as to what can and can’t be deducted as a tax expense when it comes to buyer’s agents’ fees and investment properties.
At Cohen Handler we are often asked about whether buyer’s agents’ fees can be considered a tax deduction and for the most part the answer is fairly straightforward. The issue most property buyers become a little confused over is regarding investment properties and the buyer’s agent involvement in selecting a property manager.
Here are our most frequently asked questions about tax expenses:
Is a buyer’s agent’s fee tax deductible?
If the buyer’s agent has helped you buy a property to live in then the answer is no. You will not be able to claim as a tax deduction the expenses incurred relating to the agent finding the property and negotiating the contract.
However, if they have assisted you with purchasing an investment property, their fees may form part of the cost base for capital gains purposes, thereby reducing any capital gains tax you will have to pay when you sell the property. The cost base is made up of the purchase price of the property along with many of the costs associated with the purchase, holding and sale of the investment property, e.g. stamp duty, borrowing expenses (loan application fees), legal expenses, auctioneer’s fees, capital improvement outlays and buyer’s agent’s fees.
If the buyer’s agent is involved in selecting a property manager, can that fee be claimed as a tax expense?
According to the Australian Tax Office (ATO) the answer to this question is no. While a buyer’s agent may offer to an investor client the services of screening and selecting a local property manager, or provide an ongoing property management service themselves, they charge a fee for the total service of finding a property determined on a sliding scale by reference to the price range of the property. That means that the fee is the same for a buyer who is going to live in the house as it is for an investment property buyer. The agent also charges the same fee if an investor purchaser does not require the agent to select a property manager.
As the agent’s invoice is not itemized , the ATO says that: ‘In these circumstances, it can be said that the agent selects a property manager free of charge as an optional and supplementary service to investor clients in order to make the agent’s services more competitive… No part of the agent’s fee is incurred for the selection of property manager’.
If a buyer’s agent charges a specific fee (based on time spent) for the selection of an appropriate property manager or itemised the amount of the total fee on the invoice, then there would be a much greater argument for this portion to be tax deductible.
What else can I claim as a tax deduction for my investment property?
Interest expenses: The interest you pay on your mortgage can be fully claimed back as a tax deduction. You can also claim interest on any loan used to buy assets like a fridge or washing machine for the property, as well as loans used for renovations or repairs. If you decide to start living in your property, however, you’ll no longer be able to claim this.
Capital works : Renovations such as altering or constructing a building, or making improvements to surrounding property can be deducted.
Depreciating assets: All items – such as the dishwasher, fridge, carpet, curtains and even the building materials suffer wear and tear over time, falling in value. You can use this natural process to reduce your tax bill. In order to do so, you’ll have to hire a quantity surveyor, who will draw up a depreciation schedule for your property. It might also be worthwhile consulting a financial advisor or accountant to make sure you get the most out of your depreciating assets.
It should be strongly emphasized however that if one is concerned about taxation implications their property acquisition – it would be wise to engage the buyers agent in conjunction with an accountant who can help you avoid unnecessary costs further down the line.
If you are interested in buying an investment or residential property, Cohen Handler’s team of expert buyer’s agents are specialists in finding the right property for you at the right price. Contact us now.