Australian property tax and expatriate tax expert STEVE DOUGLAS explains the benefit and tax implications of using a buyer’s agent.

Q. I’ve just purchased a property in Australia using a buyer’s agent. Is their fee tax deductable?

A. Buyer’s agents are often qualified real estate agents, who’ve moved away from “selling” property and choose to work independently, representing buyers seeking particular properties or those with specific requirements.

          Having someone on the ground who’s connected to the industry is beneficial if you live overseas, are unfamiliar with an area, or don’t have the time required to view and “hunt” for properties in person. Buyer’s agents charge approximately two percent of the final purchase price. And most are aware they need to justify their fee – so they tend to negotiate aggressively, to acquire the property at a price lower than you would be able to, covering the cost of their service.

          From a tax perspective a buyer’s agent fee is treated the same way as other acquisition costs, including stamp duty and legal fees, so can’t be claimed against your income tax. But if you bought your property in Canberra and rented it out as a leasehold title, purchase costs – including a buyer’s agent fee – can be claimed against any rental income. 
          For all other states, a buyer’s agent fee is a full capital cost. Any tax benefit won’t be against your income tax, it will be against future Capital Gains Tax (CGT) – upon the eventual sale of the property. All purchase and sale costs are taken off the sale price to establish a Net Capital Gain, which is the only portion subject to tax. This CGT offset may not be as attractive as a direct income tax deduction, but it does offer you some tax benefit. However, if you don’t intend to sell the property in the foreseeable future, this benefit may be a long way off from being recognised.
          Don’t forget, if you’ve acquired this property as your intended family home upon your return to Australia, the cost may not have any tax benefit – as the property may not even be subject to Capital Gains Tax under the primary residence exemptions. As such, when using a buyer’s agent the primary issue is value for service. Ensure your agent understands and fulfils your requirements and is capable of finding the right property for you and negotiating on your behalf. They should be able to achieve a better result than you could have done. And in most cases do.