Tax Time Tips for Property Investors

If you are one of the 2 million people in Australia* that have investment property, whether negatively or positively geared, tax time means getting your things in order to maximise your deductions, including your loan interest expenses.

Here’s 5 Top Tips this tax time:

1) Understand all of the deductions categories.

Expenses include; mortgage interest, bank charges, council rates, water rates, cleaning, pest control, gardening, repair and maintenance cost, insurance, body corporate fees, advertising for tenants and agent management fees, capital works, depreciation, insurance, land tax and travel to inspect or maintain the property. Whilst you may have a good accountant, it is important for you to have an understanding of what can be claimed in order to provide them with the best possible information for deductions.

2) Don’t forget depreciation and capital works.

You can claim depreciation for the decline in value of the assets in your investment property such as hot water systems, carpets and heating and cooling systems. You may also be able to claim capital works expenses from the construction of the property, usually over 25 to 40 years. These deductions can be significant, particularly in new properties. The easiest way to understand and calculate depreciation and capital works, is to invest in a tax depreciation report from specialists such as BMT.

3) Ensure you keep records.

If you rent your investment property through an agent, they may handle the vast majority of your property expenses and provide you with an annual statement with these classified according to the taxation requirements. It is likely though you also incur expenses; such as interest on your investment property loan, bank charges, insurance, travel expenses and possibly land tax. The ATO is known to audit investment property owners and adequate receipts and records including those provided by your agent need to be kept for a minimum of 7 years.

4) Don’t forget the impact of capital gains when it comes time to sell.

There can be substantial tax advantages of investing in property, however keep in mind when it comes time to sell there may be tax payable on any capital gains. For property owned over 12 months, the 50% discount applies. It may also be possible to time capital gains with other capital losses. It’s best to speak to your accountant before making plans to sell your investment property to plan for the capital gains impact.

5) Have a great accountant!

Last but not least, make sure you have a good accountant that is across all aspects of investment property to keep you on the right track and maximise your investment deductions.

For more information you can refer to the ATO’s guidelines on expenses and depreciable assets or talk to your accountant.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

* Source: ATO https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2014-15/?page=5

Tax Time Tips for Investment Property Owners

It’s tax time and those of you with Investment Property, whether negatively or positively geared, will no doubt be looking to maximise your deductions.

Here are 5 Tips on Taxation and Investment Property

  1. Have a good accountant.
    It goes without saying a good accountant that is across all aspects of investment property will keep you on the right track and maximise your investment deductions.
  2. Understand all of the deductions categories.
    Expenses include; mortgage interest, bank charges, council rates, water rates, cleaning, pest control, gardening, repair and maintenance cost, insurance, body corporate fees, advertising for tenants and agent management fees, capital works, depreciation, insurance, land tax and travel to inspect or maintain the property. Whilst you may have a good accountant, it is important for you to have an understanding of what can be claimed in order to provide them with the best possible information for deductions.
  3. Don’t forget depreciation and capital works.
    You can claim depreciation for the decline in value of the assets in your investment property such as hot water systems, carpets and heating and cooling systems. You may also be able to claim capital works expenses from the construction of the property, usually over 25 to 40 years. These deductions can be significant, particularly in new properties. The easiest way to understand and calculate depreciation and capital works, is to invest in a tax depreciation report from specialists such as BMT.
  4. Ensure you keep records.
    If you rent your investment property through an agent, they may handle the vast majority of your property expenses and provide you with an annual statement with these classified according to the taxation requirements. It is likely though you also incur expenses; such as interest on your investment property loan, bank charges, insurance, travel expenses and possibly land tax. The ATO is known to audit investment property owners and adequate receipts and records including those provided by your agent need to be kept for a minimum of 7 years.
  5. Don’t forget the impact of capital gains when it comes time to sell.
    There can be substantial tax advantages of investing in property, however keep in mind when it comes time to sell there may be tax payable on any capital gains. For property owned over 12 months, the 50% discount applies. It may also be possible to time capital gains with other capital losses. It’s best to speak to your accountant before making plans to sell your investment property to plan for the capital gains impact.

For more information refer to the ATO’s guidelines on expenses and depreciable assets or talk to your accountant.

 

Thinking of reviewing your investment property loan? Or purchasing an investment property?

telephone Call Douglas today on 0408 671 524

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Is Negative Gearing for me?

Negative Gearing can be described as an approach to investment whereby losses recognised against one investment can be offset against other income, with the effect of reducing one’s overall tax. In Australia, it generally refers to residential property investors who can offset losses on an investment property (or properties) against their regular PAYG income.

Negative gearing is most valuable to taxpayers in the highest tax bracket, as their allowable tax deductions are worth more cents in every dollar.  Take the following examples:

Example – Anthony

Anthony is an Engineer, earning a gross annual salary of $75,000. He decides to purchase an investment property with the following estimated financial results:

Rent Received                                 $20,000

Interest Payable                              $18,000

Repairs & Maintenance                 $2,000

Management Fees                          $1,000

Depreciation                                    $2,000

Total                                                  ($3,000)

Anthony can offset the $3,000 loss on his investment property against his $75,000 income, meaning his Taxable income for this purposes would be $72,000 (leaving aside Medicare and any other allowable deductions). With his marginal tax rate of 32.5c in the dollar, Anthony can reduce his tax bill by $975. Thus he is out of pocket $2,025 in that year.

 

A person on the highest marginal tax rate will benefit more from the same scenario as the following example shows.

Example – Darrell

Anthony’s boss Darrell earns $200,000 per year and has also decided to purchase an identical investment property to Anthony, with the financial results exactly the same:

Rent Received                                 $20,000

Interest Payable                              $18,000

Repairs & Maintenance                 $2,000

Management Fees                          $1,000

Depreciation                                    $2,000

Total                                                  ($3,000)

Darrell can offset the $3,000 loss against his taxable income (again leaving aside Medicare, levies and other allowable deductions). With his marginal tax rate (highest tax rate) of 0.45c in the dollar he reduces his tax payable by $1,350. Darrell is therefore out of pocket $1,650 on the same investment.

Opponents of Negative Gearing will argue that the additional tax benefits available to investors (versus owner occupiers) such as the ones outlined above mean they cannot afford to compete in the marketplace for the same properties.

Supporters of Negative Gearing argue that the tax deductibility of losses means they as landlords can charge lower amounts of rent, therefore making that housing more affordable to tenants. Developers contend that without investors they would lose demand for their properties and consequently supply would slow down supply, perversely resulting in higher prices anyway!

Whatever your position Negative Gearing is currently an effective and legal way to invest in property, however incurring a loss on property should not be your primary reason to invest. The tax effect of investing in property should be a consideration, but not the only one.

Speak to your Accountant to determine whether negative gearing can work for you. If it is, get in touch to arrange the necessary finance, I can help with determining your borrowing capacity and pre-approvals before you start looking for an investment property.