With the ATO paying more attention to property investors we thought it prudent to cover one of the most common questions posed to us here at BAG, are buyer’s agents fees tax deductible? In short it depends on the services rendered that compose the buyer’s agent fees.
The most common service that clients wish to know whether or not the buyer’s agent fees are tax deductible for, is when they have engaged and paid an entity or person to find them a suitable property to purchase. The answer is no they aren’t able to claim the cost of this service in the year of purchase, however if the property is for investment purposes the costs may form part of the cost base for capital gains purposes. Therefore any tax benefit won’t be applied to their income tax, however it will come into play against future capital gains tax (CGT) on the sale of the property.
If they have engaged a buyer’s agent to assist them to purchase a property to live in (owner occupier) then they will not be able to claim the fee for this service as a tax deduction.
Whilst an offset against CGT may not be as financially beneficially as a direct income tax deduction, it will offer some tax benefit though you do need to account for the fact in your investing strategy that this may not be recognised for a lengthy period (on sale of the property).
Other services offered by a buyer’s agent however are tax deductible. For example if they assist a client with property management then the fees associated with this service would be tax deductible in the year that they are incurred. Likewise if they act as your financial broker the fees for this service will be deductible over five years.
The pertinent Australian Tax Office interpretative decisions released relevant to this topic are as follows:
ATO ID 2009/9 Income Tax, Deductibility of expenses: property buyer’s agents fee – This interpretive decision confirms the expenses incurred relating to the identification and selection of a property and the negotiation of the contract to purchase the property are not tax deductible.
ATO ID 2003/361 Income Tax, Capital gains tax: cost base – consultant’s fees – This interpretive decision confirms that buyer’s agent fees incurred relating to the identification and selection of a property does form part of the second element of the cost base.
Something to keep in mind is the importance of buyer’s agents itemising fees for their services rendered, which is raised in the ATO ID 2009/9 note in that the selection of a property manager was not tax deductible. It is important to keep in mind that this decision was based on circumstantial evidence and had the buyer’s agent charged 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 was a much greater argument for this portion to be tax deductible.
Exclusions to the rule?
If you purchase a property in the Australian Capital Territory then you will not be able to obtain a freehold title, and will commonly acquire the property under a 99-year crown lease. Therefore if you use the property as a rental then stamp duty, preparation and registration costs (including buyer’s agent fees) are tax deductible.
Other things to take into consideration?
Should you borrow money to pay for the buyer’s agent fees paid on a property purchase then interest charged on these funds are tax deductible.
Please note we are not qualified accountants. You should seek independent advice from a qualified tax professional that will be able to take your personal circumstances into account.