7 tax tips for real estate investors at EOFY
With a range of tax incentives still available on investment properties, the end of a financial year can be a rewarding time for property investors. We give you our top tips for 30 June.
1) Prepay your interest
Your lender may let you pay the interest on your investment property home loan in advance, especially if you have a fixed rate loan. That means you can push next financial year’s interest payments into this year and then claim them as a deduction on your tax return.
While this requires you to have the funds upfront, it could also potentially lead to a considerable reduction in your income for tax purposes. That’s particularly true if you earn a high income and have a substantial loan on your investment property.
2) Claim depreciation
Property investors can deduct depreciation on their property – that is, the annual decline in the value of the building’s structure, permanent fixtures and plant and equipment. This may include, for instance, the annual fall in the value of items such as ovens, washing machines, carpets and blinds.
You can claim interest on all qualifying depreciating items on investment properties purchased after 7.30pm on 9 May 2017. For investment properties where the contract was entered into after then, you can only claim depreciation on new items.
To make your claim you’ll need a depreciation schedule. You could draw this up yourself but it’s often a wiser approach to have it done by a quantity surveyor.
3) Claim your borrowing expenses
Did you know many of the costs associated with taking out your home loan are also tax deductible? This includes lenders mortgage insurance (LMI), as well as any loan establishment fees, valuation fees, mortgage broker fees and even any stamp duty you needed to pay on the mortgage itself. (This is different to – and usually much less substantial than – the stamp duty you paid on the property.)
So, if you’ve taken out a loan to purchase an investment property this financial year – or even if you’ve refinanced the loan on your existing investment property – be sure to make the most of this tax deduction.
4) Lodge a PAYG withholding variation
Most property investors, even those who are negatively geared, tend to pay the interest on their home loans when it falls due but then wait until the end of the financial year to claim it as a tax deduction. This can cause substantial problems with cashflow.
So if you find yourself in this position, you could consider applying to the ATO for a PAYG withholding variation.
A PAYG withholding variation lets you adjust the amount of PAYG you pay throughout the year so that you can effectively receive your tax deductions as they arise instead of having to wait to be reimbursed. However, if you adjust your PAYG too far downwards you may find yourself having to reimburse the ATO when you lodge your tax return.
5) Time any Capital Gains Tax events right
If you plan on selling an investment property, you have to pay capital gains tax (CGT) on any profit you make. This means your profit will be treated as income and taxed at your marginal tax rate (ie the top rate you pay).
Generally, that CGT will be payable based on your income in the tax year you exchange contracts. If you want to keep your taxable income down this financial year, you could consider pushing exchange into July so that your profit is assessed against next year’s income. Talk to your accountant for specific advice on your own circumstances.
And remember, you’ll receive a discount of 50% on any capital gain made on investment properties you hold for longer than 12 months.
6) Hold onto your receipts
The ATO treats your receipts as verification that you’ve spent the money you claimed so it’s important you hold onto them. Otherwise, you may be denying yourself legitimate deductions if the ATO ever investigates your records.
7) Get good advice
The rules governing investment property deductions are complicated and sometimes downright confusing.
More than ever before it’s important that you get good advice from your accountant or financial planner on what you can and can’t claim, as well as on structuring your investment for maximum effect.
SOURCE : https://www.realestate.com.au/home-loans/guides/7-tax-tips-for-real-estate-investors-at-eofy