Being tax-smart when you are investing in property means more than making the right property choices. If you use your property to earn income at any time, you will have tax obligations and entitlements.
Here are some tips to help you get it right at each stage of the journey.
Getting record keeping right makes tax time easy
Whether you use a tax agent to prepare your tax return or do it yourself, you need to keep proper records over the period you own the property.
Keep the right records for each stage of your journey to ensure you’re able to claim everything you’re entitled to.
Buying a property
- Set up an easy-to-use record-keeping system as your first priority. This can be as simple as a spreadsheet or you can use professional software.
- Keep records of every transaction over the period you own the property. This includes contracts of purchase and sale and conveyancing and loan documentation.
- Also keep records of the costs of buying the property such as legal fees, stamp duty on the transfer and initial repairs.You can’t claim an immediate tax deduction for these but they will reduce the tax you pay when you sell the property.
Owning a property
Include all your rental income in your tax return.
- You can claim immediate tax deductions for things such as:
– loan interest
– rates and taxes, including council and water rates and land tax
– property management fees
– body corporate fees
– cleaning and gardening
– repairs and maintenance relating to when your tenants were living in the property
- You can claim tax deductions over several years for things such as:
– capital works, otherwise known as building costs
– borrowing costs
- When lodging your tax return make sure you:
– include all your rental income
– only claim deductions for periods that your property is rented out or genuinely available for rent
– don’t claim deductions for periods that you use the property yourself.
- Scan copies of your receipts to make it easier to store and access them.
Remember: keeping proof of all your income, expenses and efforts to rent out your property means you can claim everything you are entitled to.
Selling a property
If you sell an investment property or your main residence that you have rented out, remember:
- you may have to pay capital gains tax, even if you transfer the property into someone else’s name
- capital gains tax is the difference between your cost base (costs of ownership) and your capital proceeds (what you receive when you sell the property or the market value when you transfer the property)
- if you have claimed a capital works deduction in any income year your cost base should not include these amounts
- if you own the property for more than 12 months, you will be entitled to a 50% discount on tax on the capital gain
What we’ve covered so far gives you a good summary of what you should be doing to get your tax affairs as they relate to your rental property in order, but knowing this info is really most relevant for you only after the end of the financial year.
Why Should You Do Your Tax Planning Well Before The End Of The Financial Year?
The reason for getting your tax planning done as early as possible is that once June 30 comes around, you can only record what you’ve done during the year, and then complete your tax return based on that.
Everything has been earned, and the money has usually been spent or invested. There’s not a lot you can do in July to legitimately minimise your tax liability for the previous financial year.
That means you need to decide on a strategy as soon as possible, and then implement the tax planning recommendations your advisor gives you before the 30th of June if you want to legitimately maximise your income and minimise the tax you pay.
When you don’t do this planning, you’re missing a great opportunity when you’re having your tax return prepared. That’s why rather than waiting until the end of the financial year, you should see us to book a tax planning session as soon as possible.
When you do there’s a very good chance you’ll be able to pay less tax, so you can keep more in your pocket for important things like holidays or travel, your hobbies or other things you want to do, or maybe paying down your home loan to give yourself a savings buffer for the future.
But if you leave it too late, there’s nothing your advisor can really do to help. So even if you are not looking for ways to maximise your income while minimising your tax payable right now, it’s never too early to sit down with us and make a plan for your future.
Register For A Complementary Tax Planning Session
Each month we hold a limited number of complementary Tax Planning Sessions where you can get to know us, and we get to know about you and what you would like to achieve. Then together we can often come up with clever ways we might be able to help you.
Would you like to join us for one of these sessions?
If you’d like to schedule one of these complementary, obligation free one-on-one sessions, even if you’re just curious and you’re not sure what to do right now let me know by using this contact form or give us a call on 1300740066 and we’ll set things up for you.
I’m really looking forward to meeting with you,
James Huy Vuong
More information On Rental Property From The ATO
Go to ato.gov.au/rental
Watch the short videos at ato.gov.au/rentalvideos
Download the free Rental properties guide at ato.gov.au/rentalpropertyguide
Read the Guide to capital gains tax at ato.gov.au/cgtguide