"Tax is an unavoidable aspect of life, and in property investment. However, it doesn't have to be a pain to do each year. Here are a few tips to help you!" - Jesse Lee, Digital Product Manager
As any successful property investor will attest, making an income from rental properties is not an armchair ride to riches.
It takes time, involves significant risk management and can get complicated – especially around the end of the financial year.
Many Australians rightly view property as a vehicle to achieving financial freedom, and with one of the world’s friendliest real estate tax regimes for investors, it can indeed offer rewarding financial returns.
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While Australia’s tax laws in relation to property investment may be supportive, they are anything but simple. To help investors through the tax maze that can spell the difference between positive and negative cash flow, Australian Property Investor Magazine spoke to Leah Oliver, founder of Minnik Chartered Accountants, who shared insights and tips on preparing for the end of the financial year.
Landlords often come under scrutiny from the ATO when lodging tax returns, so it is important they complete their claims accurately.
Leah’s Top 20 Tax Tips, interspersed throughout this article, are an invaluable guide for all investment property owners.
“The amount of rental income an investor can expect to claim depends very much on the earning power and age of the property, and whether the property is debt funded, or geared, but on average, for positive property investments without debt and no depreciation, you can expect to claim at least 30 to 40 per cent of income,” Ms Oliver said.
“Where the property is built within the past 5-10 years, there may be depreciation claims to account for that can enhance claims to approximately 60 to 70 per cent, depending on asset value and the extent of structural works.
“For a negatively geared property, you’re generally looking at around 100 per cent.”
Ms Oliver identified a series of common pitfalls that she’s seen in her industry that property investors succumb to, centring on a lack of planning, focusing on less significant aspects of the investment, and rushing decisions.
“On the planning front, there may be opportunity to liquidate weak investments that may be draining stronger ones.
“A resulting gain may utilise a carry forward loss, or alternatively a resulting loss may absorb a current year capital gain.
“Perhaps it is wise to hold on to an investment until after 30 June if other income in the current year is high — the important thing is to be aware that substantial tax savings enhance a wealth position over time with careful research and planning.”
Ms Oliver said too many investors go into their purchase(s) at high premium prices, attracted by sales pitches for everything shiny and new, the benefits of depreciation tax claims, and real estate promises of high rental returns.
“Investors need to be focused on capital returns over rental returns and in a stable market we make our money on the way in.
“Capital growth is all about securing a bargain in a secure growth location — we see too many investors overextend on debt simply to pay too much for their purchase and allow tax savings on depreciation, for example, to sway their decisions over the strength of the asset itself.
FOMO is a potent force in the property market today as prices are rising but it is not the foundation of a sound business decision.
“Clever investors don't compare themselves to anyone, and they obtain the right advice,” Ms Oliver said.
“Just because it is tax time doesn't mean you have to make a move; it simply means you need to be aware of potential tax savings available to you at this time.
“Taking these up is a personal choice very much dependent on your specific circumstances and always secondary to wealth decisions.”
State taxes, duties and levies may differ by state, for example land tax and stamp duty, body corporates, council rates etc, but income tax, GST and other taxes are national.
Ms Oliver recommended that for multiple properties, it was best to seek expert guidance.
“When you engage your accountant, advisor or tax specialist, ensure they are digital driven and tech savvy,” she said.
contract of sale (sale date)
settlement statement and contract of sale (original purchase date)
details of unusual circumstances during the life of the property, e.g. principal place of residence considerations or changes to original cost base.
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Source: Australian Property Investor
Francis, C. (2021, March 18). Rental property claims needn’t be a taxing experience. Australian Property Investor Magazine. https://www.apimagazine.com.au/news/article/rental-property-claims-needn-t-be-a-taxing-experience/