Individual tax returns from $110 - $130
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Income received by way of rent from residential, commercial or industrial property is assessable income, with expenses incurred in gaining such income able to be claimed as deductions
• Date of signing contract to purchase property.
• Date property first became income producing.
• Number of weeks it was rented.
• If property purchased as joint tenants – income and deductions must be divided equally.
• If the property is purchased as tenants in common – the percentage of the income and deductions may vary according to their interest in the property as specified in the property title.
These details must also be kept with the taxpayers records.
Capital gains implications – In general, on disposal of the property, it will subject to capital gains tax for the period that it was rented out. There are however, a few exceptions to this rule.
Rental income is assessable when received.
It includes- advance rent, late rent and current rent received in the income year and insurance payments for loss of rent.
It excludes- rent due but not paid, rental bond (unless used for back rent or for expenses).
In the case of properties in the hands of real estate agents, they are acting as the owner’s agent and they receive income on the owner’s behalf. Income is declared from the agent’s statements from the July to June even through the rental periods may be in different financial years and the income may not be credited to the owner’s account until July of the following year.
Is your taxable income over $80,000? Have you been thinking about tax planning or way to save tax? Have you been thinking about getting an investment property? Now is the time to act on it. If your annual taxable income is above $80K, you will be paying 39% income tax (37% income tax + 2% Medicare levy) on every dollar earned over $80K.
However if you had an investment property & it was negatively geared (rental income is less that the expenses for the property), you could then use this loss to reduce your taxable income and pay less tax. Example: If your taxable income is $85,000 for an particular year and tax loss on the property is $7,000.00, then you pay tax on $78,000.00 ($85,000 - $7,000) and not $85,000.00. Also now you will be paying 32.5% income tax + 2% Medicare Levy instead of 37% income tax + 2% Medicare Levy. (Tax rates based on ATO 2014-2015 Income Tax Rates)
Most of the times almost 90% of the investment is supported by the tenants and you are left with almost only 10% of the expenses. However looking at the tax benefit you will get from the tax loss, it pretty much pays itself.
Rental property expenses that you are able to deduct, broadly include interest on loan, property agent fees, council & water rates, property & landlord insurances, repairs & maintenance, cleaning/gardening, pest control, phone, land tax, printing & stationery, postage and depreciation.
If you buy a new property, depreciation is considerably higher for the first few years which would result in bigger tax benefit. Lot of landlords also do interest only payments for the first few years to get the maximum tax benefit.
Lot of people are worried about the initial deposit for buying the investment property, however if you have good equity in your own home chances are you can use that equity to borrow for investment property, making it easier for initial investment. Your mortgage broker will offer more information.
Looking at the bigger picture, investment property is not only for tax planning/tax benefit, you are also adding to your wealth portfolio thus paving a way for a comfortable retirement.
We can help you get in touch with the right people who can help you with your loans and locating a good property. Contact us today to find out how you can save tax with your investment property.
Call Tax Accountants Lynbrook at 1300 300 106 for further information.
The current financial year is nearly ending and with the upcoming elections, the recently declared federal budget measures might not have any chance to take effect right up until the next financial year.
However, in the interim, there are numerous strategies you may possibly be able to put into play to make sure you do not pay even one cent more tax than is required for the 2015-16 year.
The best tax planning strategies are implemented in July, not June. That means as early as possible in any financial year, not the end of it. And it is also prudent to keep in mind that appropriate tax planning is more than just finding bigger and better deductions — the best tips are the ones which set individual's tax affairs in better positions not just for the current financial year but for future income years to come.
We have put down a list of possibility that may possibly get you planning along the right track:
Bring forward expenses
Try to bring forward any other deductions such as interest payments into the 2015-16 year.
If you know that in the next financial year you will be earning less for example you might be going on maternity leave, deductible expenses that can be brought forward into the present financial year will be more beneficial.
An exception for some individuals will occur if you anticipate earning more next financial year. In that situation, it might be to your benefit of holding off any tax-deductible payments till next financial year, when the financial benefit of deductions could be greater. Your personal circumstances will determine whether or not these measures are suitable for you.
Prepay investment loan interest
In a similar line of thinking, see if you can work out with your financial provider to make upfront interest payments for certain ventures, such as a margin loan on shares. Most taxpayers can claim a deduction for up to 12 months ahead. But make sure you evaluate how you and your lender have allocated funds which are secured against your property properly, as a tax deduction is generally only allowed against the finance costs incurred for the objective of earning assessable income from investments. A deduction might not be available on funds you redraw from this loan to put to other purposes.
Use the CGT rules to your benefit
If you have made any capital gain from your investments this financial year, then think about selling the investments that are presently sitting on a loss prior to year-end. By doing so indicates the capital gains you made on your thriving investments can be offset against the capital losses from the less successful ones, reducing your overall taxable income. A similar approach could also be adopted if you have carried forward capital losses and wish to realise some gains at year end.
Keep in mind that for CGT purposes a capital gain generally occurs on the date you sign a contract, not when you settle on a property purchased.
Many expenditures arising from owning a rental property are claimable, so it can be beneficial to bring forward any expenditures prior to June 30 and claim them in the current financial year. If you know that the investment property requires any repairs or pest control, see if you can incur these costs before year-end. Of course, with all of the above, trade cautiously and don’t let simple tax drive your whole investment decisions.
Every individual taxpayer is required to lodge their return before October 31, but tax agents are generally given more time to lodge, which can be a handy extension to a payment deadline. Of course, if you’re sure you are going to get a refund it’s no use delaying, so in these cases; it is worth getting all of your information to this office as soon as you can after July 1.
If you need any further information on the above mentioned tips, call Tax Accountants Cranbourne at 1300 300 106 for further information.