Christmas comes but once a year, and so does a tax return which can also produce plenty of winter bounty (especially if tax minimisation rules are explored to their fullest extent).
Reducing tax is in everyone’s interest.
No matter what your situation, age or income, a little bit of End of Financial Year planning can go a long way in helping you to minimise your tax liabilities and even boost your retirement savings.
To assist in navigating the complex guidelines set by the ATO we have compiled a non-exhaustive “smart list” of legal winning formulas which are not always considered in strategies relating to property investment tax reduction.
- As of the 1st July, most taxpayers can top-up their superannuation and claim a tax deduction for personal contributions (concessional) made to their superannuation fund. Be cautious not to exceed the $25,000 cap and don’t forget to notify your super fund if you intend to claim a tax deduction for amounts paid.
- If your spouse’s ATI income is $37,000 or less (previously $10,800) you can top up their super by $3,000 and claim the maximum tax offset of $540.
2. Borrowing, Internet and Prepaying Expenses
- Borrowing expenses over $100 are deductible over 5 years. Borrowing expenses include: title search fees charged by your lender, loan establishment fees, stamp duty charge on the mortgage, LMI, broker fees and valuations for loan approval. Borrowing expenses can be quite significant and definitely not something you want to overlook.
- Prepaying deductible interest and other expenses, such as rates and insurance, up to 12 months in advance enables taxpayers to increase immediate tax deductions. This is a good strategy for those with changing employment circumstances or wanting to offset additional income such as CGT.
- You can claim interest expenses on any borrowing used to purchase investments. The purpose of the loan determines deductibility not what asset was used by the bank as security.
- If you have refinanced investment loans throughout the year the balance of the original borrowing costs or exit fees are fully deductible.
- Rates and interest expenses on borrowings to purchase land is deductible if the intention is to build an investment property on the land, even if construction has not yet commenced.
3. Land Tax
- Land tax costs are deductible (not capital) so ensure to claim the expense each year if applicable.
- Depreciation is an easy one however many investors do not claim depreciation or use an inappropriate schedule that underestimates the deduction. Even your older properties can offer good deductions so ensure you have a depreciation schedule prepared by a specialist quantity surveyor so you claim every possible entitlement.
- When conducting renovations a quantity surveyor should prepare a scrapping or demolition schedule to place a value on all items being thrown away or demolished for an immediate tax deduction. On completion of the renovation or construction a new depreciation schedule will be needed.
5. CGT & Timing
- When selling an investment property you should include all possible associated costs such as conveyance to buy and sell, stamp duty, selling agent’s fees, buyer agent’s fees, costs associated with marketing the property (for example touch-up paint, temporary furniture etc.) and the balance of borrowing costs (which are amortised over five years).
- Remember to consider the timing of a sale. CGT is triggered at date of contract not settlement so planning a sale in conjunction with anticipated income across a year is always a great idea where possible.
- If an investment property is held for 12 months then a 50% capital gains tax discount applies. If an investment property is sold before 12 months then the gains are still a capital gains (but without the 50% discount… hence the importance of timing!)
- Capital losses offset capital gains so you may wish to sell any non-performing assets with losses to offset capital gains if applicable.
- If you have sold a property used to operate your business you may be eligible for the 50% small businesses exemption (active asset) on top of the 50% CGT general discount. Yes, two 50% deductions.
And finally, it may not be too late to claim missed deductions. Taxpayers are entitled to amend returns lodged within the past two years so be sure to request a review of your past returns if you think you have missed out!
Need more information?
The team at ABA Tax are here to help! Call 1300 797 175.