It's that time of year again, when thoughts turn to tax returns and receipts. But are you making the most of your tax benefits?
Know what to claim
As an investor you may be able to claim tax deductions for your rental properties on expenses such as: travel to collect rent or inspect the property, advertising to attract a tenant, property agent and/or management fees, body corporate fees, council rates, gardening, cleaning, pest control, building insurance, repairs and maintenance, water, home loan fees and loan interest.
A list of claimable rental expenses is available on the Australian Tax Office website; alternatively, consult a tax professional.
Don’t forget capital gains tax
Unless there is a capital gains tax exemption when selling your property (it is your principal place of residence), you pay tax on profit made above the original purchase price, albeit potentially at a discounted rate. Keep in mind capital losses (no profit is gained upon sale) are not deductible against your ordinary taxable income but they are used to reduce any other capital gains you make from assets during the financial year or any gains in subsequent years. Consult a tax professional for advice.
Pay your interest-in-advance
Kristy Sheppard, senior corporate affairs manager at Mortgage Choice, suggests considering an interest-in-advance loans. These are similar to standard fixed-rate interest-only loans but you pre-pay the next year's interest before 30 June and claim it as a tax deduction in the current year. This means that upon lodging a tax return, eligible investors can effectively receive a portion of their interest back via a tax refund. Keep in mind individual circumstances differ so it’s smart to seek expert advice from your tax accountant and a mortgage broker.
"It is a good move to consult a professional tax adviser and mortgage broker before choosing a loan and buying property, to learn about the tax deductions available on your potential investment and what home loans suit your plans.," adds Sheppard. "You may also want to glean knowledge from property research companies, buyers’ agents and financial advisers.”