How does owning an investment property affect your taxes?

BMT team — Tue, 24 Nov 2020 22:43:39 +0000

Does owning an investment property affect your taxes? It certainly does. The income generated from the property is included in your taxable income on top of other income sources, such as your salary. But owning an investment property doesn’t necessarily mean paying more tax. In fact, it can also lead to you paying less tax while building capital. In this article we will explore: Rental property income Rental property expenses Property depreciation – the deduction without an expense What gearing is best for you? Rental property income The rental income you receive from your investment property is included in your annual taxable income. Given that property is usually a stable, long-term investment, it’s easy to estimate the income stream it provides. Residential leases often run for 6 to 12 months and the national vacancy rate is currently stable at 2.1 per cent. This means on average, properties only sit vacant for one week a year. Rental property expenses Claiming expenses goes hand-in-hand with reporting the income you receive. Most costs associated with owning and operating the rental property can be claimed in the financial year the expense was made. Some of the top rental property expenses include interest repayments, depreciation, insurances, council rates and charges, property management fees and more. The only types of expense you can’t claim are capital expenses. These are the foundational costs of owning the investment property such as the cost of land, building and pest inspections prior to the exchange of contract and stamp duty. These are assessed when calculating the cost base to work out capital gains tax (CGT) when the property is sold. Sometimes the rental property expenses can be more than your income, especially in the earlier years of ownership. When this occurs, it means your property is ‘negatively geared’ as it’s making an overall loss. The loss from your investment property can be used to reduce other assessable taxable income like your salary, meaning you pay less tax. Property depreciation – the deduction without an expense Property depreciation is one of the most beneficial deductions you can take advantage of. It’s the second-highest deduction available to property investors, after costly interest repayments. Not only can you claim it for up to forty years, but an added bonus is that you don’t need spend any money to claim it. This is because depreciation is the natural wear and tear of a property and its assets over time. This depreciation is treated like other expenses and is deducted from your taxable income each year. What gearing is best for you? There is no ‘right’ answer to this question. It depends on your own investment strategy. Most Australians have debt associated to their property and are therefore running at a loss. This allows them to take advantage of negative gearing. Property investors sometimes intentionally negatively gear their property. They do this to reduce their taxable income as their property grows in value. While self-funded retirees may have a different strategy, aiming for positively geared property, as their investments are their main source of income. Having a trusted investment property team around you will help you establish a solid strategy, making your rental property income work for you. For over twenty years, BMT Tax Depreciation has helped over 700,000 investors claim property depreciation and boost their cash flows. To learn more about depreciation and the services that BMT offers, Request a Quote or call 1300 728 726. Related topics: Is stamp duty tax deductible? Are refinance costs tax deductible on a rental property? Top rental property tax deductions How does investment property depreciation work?

The post How does owning an investment property affect your taxes? appeared first on .

June 2015 end of financial year tax planning and business tips

Chan Naylor Team — Tue, 30 Jun 2015 00:00:24 +0000

We all need to have a closer look at our tax affairs for the end of financial year and start to prepare ourselves for effective planning in the next year. This article is an outline of main points everyone needs to think about to help them with their personal planning now and for the future. Advice for individuals Reasonable work related expenses of up to $300 can be claimed without receipts but notwithstanding, need to be real Bring forward any investment property expenses before the end of the financial year so you can claim them this year Pay any interest on fixed interest loans upfront to give yourself a deduction in this current financial year If your salary next year will decrease then bring forward your deductible expense If your salary is expected to increase next year then try to defer payments until then Be mindful that Capital Gains Tax (CGT) occurs on the contract signature date and not on the settlement date Working from home Producing assessable income at home and using your home as your office may be assessable to claim expenses thereby allowing for a deduction. Look for the following: Any depreciation of office equipment Home office running costs Home office occupancy costs (will impact on main residence tax exemption) Office equipment Office equipment that has shared use between office and non-office must be depreciated in proportion of the business/non-business use. However, if the asset is used exclusively for business, the full deduction available for the item can be claimed If a home business has an aggregated turnover of less than $2 million, an immediate write-off can be applied for assets added after 7:30pm on the 12th of May 2015 as introduced during the May 2015 federal budget Assets installed between the 1st of January 2015 and 7:30pm on the 12th of May 2015 which cost $1,000 or less should be pooled to maximise depreciation deductions. 15% can be claimed in the first year and 30% in the subsequent years. If an asset was purchased between the 31st of December 2013 and the 1st of January 2014, if the asset cost $6,500 or less an instant asset write-off will also apply Home office running costs Running costs (expenses) include, power, gas, phone, cleaning Use a diary (minimum record of four consecutive weeks) to record the amount of time your home office was used and apply the Australian Taxation Office ‘Acceptable Tax Office rates’ at thirty four cents per hour Using your phone for business allows you to claim a deduction for phone rental plus calls, but not installation costs. Again, if the phone is used for a mix of business and personal use then a deduction can be claimed in proportion Home office occupancy costs Home must be a place of business, not a salaried employee working from home. You must have an area that is dedicated to and set aside exclusively for your business and advertise property as such. Make sure that you have adequate insurance in place and review council regulations Expenses may include rent, mortgage interest, land taxes, home insurance premiums and council rates. Again, the same business occupancy percentage can be claimed in relation to the area of your home If claiming occupancy expenses (e.g. mortgage interest depreciation) then you will be expected to account for any capital gain attributable to the business portion of your house when it is time to sell Likewise, the business portion of the home will be subject to CGT although some concessions may apply Small business Claim your deductions. Any expense that your business incurs that is related to making an income can be claimed Don’t forget, small business owners with an aggregated turnover of less than $2 million are eligible for an instant write-off for the purchase of any asset after the 12th of May 2015 up to $20,000 in value Assets installed between the 1st of January 2015 and 7:30pm on the 12th of May 2015 which cost $1,000 or less should be pooled to maximise depreciation deductions. 15% can be claimed in the first year and 30% in the subsequent years. If an asset was purchased between the 31st of December 2013 and the 1st of January 2014, if the asset cost $6,500 or less an instant asset write-off will apply Interest on loans – you can deduct the interest charged on the money that your business borrows including overdrafts and business loans Interest accrued on your business loan but not paid by June 30th can be claimed A business activity funded through any personal loan or credit card of the business owner can also be claimed with the relevant paperwork Look for deduction value in your trading stock by doing a stock take. If your stock value changes by $5,000 you must take this into account when assessing your taxable income for the year. A lower stock value equates to an allowable deduction The different methods available for valuing stock are: – Price you bought it – Current selling value – Replacement value – Stock write down for damaged/obsolete items A deduction can be claimed if your stock values changes less than $5,000 by using one of the above methods Keep records of stock write down reasons Make sure that you do not include GST with the value of your trading stock where you are entitled to a GST credit There are various CGT strategies that can be used: – Crystallise asset losses before 30th June as they may be able to offset any capital gains you make on selling profitable assets. – Delay crystallising any capital gain until the next financial year. Capital gains can be offset against trading losses within the same structure. Note, to assist with your forward planning, the disposal of a CGT asset occurs at the date of your contract Accrued expenses can also be claimed: – Employee end of year bonuses – Director bonuses Identify any bad debts for the year and write […]

The post June 2015 end of financial year tax planning and business tips appeared first on .

» Taxation

How does owning an investment property affect your taxes?

June 2015 end of financial year tax planning and business tips