TAX time is just a couple of months away, which means the word on the lips of hundreds of thousands of Aussie real estate investors is “ka-ching”.
Whether you’re an investor seeking some hefty tax deductions or a property buyer or seller about to make a transaction, there are a few tax traps that can snare anyone — especially at this time of the year.
Here are some snags to watch out for:
Land tax can be nasty for owners of multiple properties, and many buyers and sellers don’t realise that it can sneakily strike them midyear.
That’s because land tax is calculated on how many properties you own on June 30, other than your main home, and your ownership is based on the contract date rather than the settlement date.
As an example you may sign a contract to buy a new home in May or June, but are yet to sell your existing home, which means the value of the new home counts towards land tax along with other investment properties.
The excess bill can run into thousands of dollars. It’s not fun. I personally experienced this trap several years ago and there was much swearing involved.
Be aware of the risks that tax can add to your real estate transactions and investments.
Next month’s Federal Budget is going to have measures to combat housing affordability, so investors should keep a close eye on things.
While negative gearing tax incentives are unlikely to be scrapped, if you listen to the latest talk coming from Canberra, there’s a growing expectation of changes to capital gains rules that would mean investors will have to pay more tax on the sale of their property.
Budgets always carry risk for investors, especially when governments are having trouble balancing their books, so watch out!
Many real estate investors fail to claim all the tax deductions they are allowed, particularly when it comes to depreciation.
The Australian Taxation Office allows tax deductions for a huge range of items in an investment property, from curtains and carpets to ceiling fans and garden gnomes.
The best way to claim them all is by getting a tax depreciation report drawn up by a quantity surveyor. They might cost you $600 or $700 but most tax depreciation companies guarantee they will get you a deduction bigger than the cost of the report, which itself is tax-deductible. Beware of cheap online services that don’t send anybody to your property, which means they can’t possibly spot every possible deduction.
The ATO also puts out an annual guide to what you can and can’t claim. Search for “ATO rental properties” online and follow the link.
Rental property deductions total billions of dollars a year, which gives the taxman good reason to keep a very close eye on taxpayers. Make sure you declare income and capital gains, and never claim deductions for assets that are used for private purposes rather than investing.
The ATO conducts sophisticated data matching programs that check bank accounts and lands titles offices, so you can’t hide. When you get caught, it will be costly.
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