» Property investment tips

6 tax benefits of owning an investment property

BMT team — Fri, 26 Apr 2024 01:37:43 +0000

There are significant tax benefits of owning an investment property, even if a property is not producing an immediate profit. Here are 6 tax benefits of investment properties all investors and property managers need to know about: Negative gearing Capital gains tax exemptions Claiming interest on your mortgage Equity loan withdrawals are tax free Small expenses Depreciation Negative gearing An investment property is negatively geared when the return, or rental income is less than the property’s expenses. Essentially, this means the property is making a loss and the cash flow is negative. This is not necessarily a bad thing; it actually can create a substantial tax benefit because the property owner can claim the loss as a tax deduction to offset their taxable income, meaning they pay less tax. If the rental payments are not covering the mortgage payments and other outgoing fees, the property owner can claim this loss as a tax deduction. Read more: Uncover additional benefits of negative gearing property Capital Gains Tax exemptions Capital Gains Tax (CGT) is the tax paid on profits from selling assets. When a property is sold, there is usually a gain or a loss. In the event of a gain, the seller needs to report this as income. The gain will then be added to their annual taxable income and the total amount will be taxed at the individual’s tax rate. There are discounts available if the individual has owned the asset for more than twelve months. A property owner is entitled to a fifty per cent discount on CGT if they have held the property in their name for more than twelve months, from the date of signing the contract. If a property is sold in a period shorter than twelve months, owners will have to pay full capital gains tax. This tax rate is dependent on the individual’s income. It’s important to note your main residence is generally exempt from CGT due to the ‘main residence exemption’. A home is classed as a main residence by the Australian Taxation Office (ATO) if it has been the home of you, your partner, or other dependants for the whole period you have owned it, has not been used to produce income, or is on land two hectares or less. There are other allowances for specific situations such as partial discounts for individuals who are renting out part of their home or using part of their home for an income-producing business. In these cases, CGT would be exempt for their part of the living area within the property. Claiming interest on your mortgage As an investment property owner, you can claim the interest charged on your investment property loan as a tax deduction. The interest is a cost obtained from money being made through the property. This can only be claimed if the property is being used to earn an income, owner occupied properties are not eligible for any tax deductions. Equity loan withdrawals are tax free If your property increases in value but you don’t want to sell, you can withdraw a portion of money through a home equity loan, perhaps for another property or other investment opportunities. The benefit of this is you don’t pay tax on these withdrawals. This is because you haven’t increased your financial position through deriving income, you are drawing out equity from the property in the form of a loan rather than selling to release the equity and generating a capital gain. It’s key to remember that the interest payments will only be deductible if used for other investment purposes. It’s important to always speak to a financial advisor before making big decisions. Small expenses There are many small deductible expenses which all property investors should be claiming. These could add up to thousands of dollars. Things like land tax, strata fees and council rates can be claimed as a deduction. Further examples of available deductions include insurance, legal expenses and bookkeeping costs. Deductable expenses can also be available to claim in cases where part of the property is being rented out or used to produce an income. Repairs and maintenance can be claimed immediately if they are directly related to wear and tear. However, if assets are solely replaced through renovations to increase the value of the property, these will need to be claimed as a capital works or capital allowance deduction. According to the Australian Taxation Office (ATO), repairs are considered work completed to fix damage or deterioration of a property, such as replacing part of a damaged fence. Maintenance is work completed to prevent damage or deterioration of an asset. For example, oiling a deck is considered maintenance as it helps to preserve the quality of the property and prevent future corrosion. All costs incurred to repair or maintain your investment property can usually be claimed as an immediate tax deduction in the year of the expense. However, the ATO specifies that initial repairs for damage that existed when the property was purchased are not immediately deductible. Instead these costs are used to work out your capital gain or capital loss when you sell the property. Depreciation As a building gets older, its structure and the assets contained within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a tax deduction. There are two different types of depreciation you can claim. Capital works (division 43) deductions can be claimed for the wear and tear that occurs to a building’s structure and items permanently fixed to the property such as built-in kitchen cupboards, clothes lines, and fences. Then there is plant and equipment depreciation (division 40) on items which are easily removable or mechanical in nature such as air-conditioning units, security systems and light fittings. An investment property owner will need a tax depreciation schedule to claim these deductions. A tax depreciation schedule outlines all available property tax deductions you can claim, and your accountant will then use it to lodge […]

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Are tiny houses a good investment?

BMT team — Fri, 07 Jun 2019 04:00:01 +0000

The tiny house trend has made headlines for its minimalist lifestyle and quirky appeal. More of a social movement than a fad, these small dwellings have also become a hot topic in the Australian property market. Tiny houses are compact living spaces often built on wheels. They help people live debt free and are often more environmentally friendly than traditional housing. But are tiny houses a good investment? Here’s what you need to consider before buying a tiny house investment property. Contents: Buying a tiny house Investment opportunities Tiny house depreciation deductions Buying a tiny house Before you look to buy an investment property, you’ll need to assess your finances and calculate all the associated holding costs. One of the key benefits of a tiny house investment is that the purchase cost is significantly less than a traditional home. Depending on the size and design, tiny houses range from $50,000 to $90,000. Tiny houses offer a way for people to enter the property market without gaining a substantial mortgage. However, if financing is required it’s important to note that a tiny home with wheels will be legally classed as a caravan and issued with a Vehicle Identification Number. Typical financing options for this type of tiny house include: caravan loan line of credit personal loan extension of an existing mortgage (you must have enough equity in an existing property to qualify). Another important consideration is the legalities around living in tiny houses on private land. These regulations generally exist at a local council level so it’s necessary to research the laws specific to your area. Investment opportunities Short-term holiday letting is a good way to earn an income from a tiny house investment. Holiday renting has become increasingly popular in recent years due to the rise of platforms like Airbnb. As a result, the rules surrounding short-term letting have also evolved. For example, New South Wales legislation has specific planning laws for holiday letting. The law states that if the host is present, they can use their home for short-term holiday letting all year round without submitting a development application to local council. If the host isn’t present, that property can only be leased for up to 180 days per year in Sydney and 365 days in all other areas of the state. For this reason, it’s essential you understand the requirements of holiday letting in your state or territory. Along with legislation, there are several expenses to consider when leasing a tiny house as short-term holiday accommodation. Many rental services and booking platforms charge a certain percentage per booking and this will need to be factored into your rental rate. You’ll also need to think about cleaning costs as guests will expect their accommodation to be cleaned to a high standard. Be sure to consider all relevant costs when deciding a price to charge for your tiny house. For more advice on holiday rentals, read ‘Tips for buying a holiday rental property.’ Tiny house depreciation deductions An income-producing tiny house may be eligible for thousands of dollars in depreciation deductions. Owners can generally claim tax depreciation for the time a tiny house was rented or genuinely available for rent. That is, the property is given broad exposure to potential tenants and considering all the circumstances tenants are reasonably likely to rent the property. It’s important to note that a tiny house is legally classified as a caravan, meaning tax depreciation schedules will adhere to rules and regulations relating to caravans, not houses. A caravan, and therefore a tiny house, has an effective life of twenty years and can be depreciated at 5 per cent using the prime cost method or 10 per cent using the diminishing value method. Assets within the tiny house such as flooring, blinds and even solar panels can be depreciated based on their effective life which is set by the tax commissioner and updated regularly through tax rulings. To find out how much you could claim on a tiny house investment, Request a Quote or speak with one of the expert team at BMT Tax Depreciation on 1300 728 726.

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Tips to family proof your investment property

BMT team — Wed, 19 Apr 2017 23:31:20 +0000

Safety is one of the primary areas of concern for tenants. In fact, a Real Estate View survey conducted in 2014 showed that 53.9 per cent of renters ranked safety as always important. While both landlords and tenants have responsibilities regarding the safety of a rental property, there are some areas landlords should watch out for to keep their tenants safe and to avoid any legal risks. Figures from Australia’s child accident prevention foundation Kidsafe also highlight the importance of ensuring a property is free from hazards. According to the Kidsafe website, every year around 250 Australian children aged fourteen and under are killed and 58,000 are hospitalised by unintentional injuries. Kidsafe notes that most of the accidents which occur inside homes and backyards can easily be prevented. Landlords should also be aware that ensuring a property is safe for tenants, particularly for those with young families, could increase the number of rental applicants and reduce vacancy periods. To assist landlords, we’ve compiled the following tips to help ensure a property is safe for rent and appealing for those who have young families. Install cleats to secure any blinds and curtains Landlords are obliged to ensure all loose cords and chains for curtains and blinds are able to be secured before renting a property. This is to help prevent children from using them to climb to look out of windows, accidentally being tangled, or worse suffering from strangulation. Since the early 1990’s at least eighteen deaths of children have occurred as a result of cords not being correctly secured. While it’s the tenant’s responsibility to ensure any curtain or blind cords are tied appropriately and to place furniture out of reach, the landlord is responsible for installing the cleats. If an accident occurs and blind and curtain cleats are not in place, the landlord could potentially be sued for negligence. Landlords should ask their Property Managers to check all internal window coverings, blind and cord cleats to ensure they are as safe as possible both prior to rental and during regular inspections. Weigh up whether pools and play equipment are positive inclusions Swimming pools and children’s play equipment are popular features in many Australian homes, but this doesn’t mean these items always add value for landlords or entice potential tenants. While swimming pool items make a splash when it comes to adding depreciable value; a landlord must ensure these areas are safety compliant, meet regulations for their state and are well maintained. Safety is also a concern if you’re planning to rent a property with children’s play equipment in the yard. If you decide that the positives outweigh the negatives and keeping these items at the property will attract a young family; consider installing gated areas to separate play areas, ensure playgrounds are free from trip hazards and check there are adequate fall zones and the areas are surfaced with appropriate materials to prevent injury as a result of falls. Be mindful of balconies, balustrades and windows If the property you are renting has multiple levels or is not on the ground floor, there are some precautions which can be taken for balconies, stairways, hand rails and windows. While multi storey homes may only require locks on entry doors and windows in the ground floor, including these on doors and windows which exit on to balconies or open on the second floor can provide extra security and additional safety to prevent falls. If renting to a family, often landlords will be asked to allow the installation of child proof gates at the top of stairways or to dangerous areas. Being receptive to allow such changes, or even installing these items can go a long way to keep tenants with families happy. Check the garden for dangerous shrubs, trees and pests One area easily missed when checking for hazards is the garden. Plants, shrubs and trees can all provide potential dangers to tenants, children and pets. Regular checks will ensure there are no broken tree branches which could fall and cause damage to the property or to its occupants. Some plants are potentially poisonous to children or pets that play in the yard. Prior to starting a lease, consider removing such plants or asking a professional to remove them. Often parents with young families may not have the time to keep they yard well maintained. Including regular yard maintenance and completing regular pest inspections can put your tenants mind at ease and also be a reason to keep them signing their lease for years to come.

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