A very common question for the astute investor who wants to maximise their tax returns is whether their Buyers’ Agent fee can be a tax deduction. For the most part the answer is very straight forward, however the confusion arises when your Buyer’s Agent assists with selecting a property manager.
Can I claim my Buyer’s Agent fees as a tax deduction?
This answer differs depending if you are buying a home, or adding to your investment property portfolio for capital growth.
Purchasing a home
Buyer’s Agent fees will not be deductible if the buyers agent has helped you buy a property to live in. This Is because the property you are living in will not be generating you any income (i.e. there is no rental income). The tax office views that only expenses incurred relating to you earning any assessable income can be deducted.
Therefore, property buyers will not be able to claim as a tax deduction the expenses incurred relating to the agent finding the property and negotiating the contract.
Purchasing an investment property
If you employed a Buyer’s Agent to assist you with an investment property purchase, although not immediately tax deductible against income tax, their fees may form part of the cost base for capital gains purposes in future. This means the fees charged by your Buyer’s Agent will reduce any capital gains tax you will have to pay when it comes to selling your property. The cost base is made up of the property purchase price 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.
Whilst an offset against future CGT may not be as financially beneficial as an immediate income tax deduction, it will offer some tax benefit in the future when you sell your property, which you may need to account for in your investing strategy.
What if they help me find a Property Manager?
The Australian Tax Office (ATO ID 2009/9) views the service provided by a Buyer’s Agent in assisting a client to select a property manager complimentary and therefore no portion of the agents fees are tax deductible against income tax.
This is because a Buyer’s Agent will not charge separately for this service, and will not itemise the time for this service on their invoice. In addition, most Buyer’s Agents will charge based on the property they are sourcing (regardless if investment or owner occupier) and there is no additional cost or pay associated for an investor for this service.
When are Buyer’s Agent Fees tax deductible?
For an investment property, on the sale of the property because the Buyer’s Agent fees form part of the cost base to reduce CGT.
There is an exception for selecting a property manager. The fee is tax deductible at the Australian Tax Office if the Buyer’s Agent charges a specific fee (based on time spent) for the selection of a 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 as it is associated with earning assessable income (rental income).
If you borrowed money to pay for the Buyer’s Agent fees, then the interest charged is tax deductible.
If you're wondering why you should use a buyers agent, then we recommend reading our article or getting in touch today!
Please note, this is general advice only. We are not qualified taxation accountants. You should seek independent advice from a qualified tax professional that will be able to take your personal circumstances into account.
