ALMOST two million Australians are expected to declare rental income in their tax returns this year, but less than 40 per cent will make a profit and pay tax on this income.
The Australian Taxation Office says the majority of residential investment properties make a loss, with expenses far exceeding rents.
In most cases, this is a deliberate strategy, as investors offset the need to pay tax by claiming borrowing costs, capital works and other expenses, leaving them to build up capital gain as the property value increases over the years.
Yet many landlords could still claim more, experts say.
Latest statistics from the ATO show that despite earning $28 billion in rents last year, Australian landlords still reported a $4.8 billion loss.
Borrowing costs were the biggest contributor to the losses, as interest rates, alone, counted for almost $18.5 billion in expenses.
Depreciation was the next biggest single expense.
Mr Taxman founder Adrian Raftery says one of the reasons for being a property investor is to enjoy the tax benefits.
“Outgoings to your investment property are allowable deductions and can be offset against other income. This generally results in a tax refund – so the more you can claim as deductions, the lower your taxable income and the higher your refund,” Raftery says.
Depreciation expert Deppro says many property investors are not making the most of legal deductions, with millions of dollars still going unclaimed.
“There is still considerable scope for more to be claimed in legitimate tax deductions for property investment purchases,” Deppro managing director Paul Bennion says.
“It’s estimated the value of such deductions would run in to the millions.
“Many investors don’t realise tax benefits obtained through depreciation can be equivalent to 60 per cent of the total purchase price of the property,” Bennion says.
Areas in which investors don’t take advantage of deductions include entitlements to common areas in unit complexes and depreciation claims on older properties.
“There are always depreciation benefits available,” Bennion says.
This article was published in the Courier Mail, and just shows the importance of getting good advice about firstly the property that you choose for your investment, and then from an Accountant re claiming all of the tax benefits you are entitled to.
Tax warning on share economy
THE October 31 tax lodgement deadline has arrived and Australians making money from the share economy are being urged to make sure they are on top of their tax obligations.
Money earned on Airbnb, Uber, Airtasker and similar platforms requires tax to be paid, according to Jason Robinson, director at accounting firm RBK Advisory.
“More clients are casually mentioning extra revenue streams,” Mr Robinson said. “I asked one client how their weekend was and found out they were earning $400 every weekend helping strangers move house.”
The government is beginning to regulate side income sources.
“Uber drivers are now required to be GST registered and hold an ABN before they can begin making money,” Mr Robinson said.
Airbnb and Stayz have become popular with landlords taking advantage of holiday locations by organising fixed leases for colder off-season months and then going short term for a bigger yield over summer, said Sandrina Postorino, managing director of Landlords Choice.
“During these months they can command much higher variable rents,” she said. “This all needs to be accounted for in their tax return.
“Another trap is when investors decide to Airbnb their main residence instead of their investment property, which means it is no longer completely exempt from Capital Gains Tax.”
Side hustles, or hobbies turned into income streams by entrepreneurial types also have tax requirements, according to Clayton Howes, CEO of fintech lender MoneyMe.
“If you make even one dollar on your side hustle that comes with tax obligations,” Mr Howes said.
Another confusing one is network marketing- think Avon and other modern incarnations- often undertaken by stay at home parents, said Katrina Haskew, managing director of Leading Advice.
“Where it can get messy is when turnover is more than $20,000, but they have consumed so much of their own products in testing, trials, or giveaways, that it is an effective loss,” Ms Haskew said. “This is extremely challenging to account for, so it’s paramount that stringent records are kept and presented to accountants.”
ATO assistant commissioner Kath Anderson said many Australians lodge their returns at the last minute and can make mistakes overlook income when in a hurry.
Catherine and Gabriel Mihalas both enjoy side hustles in addition to their regular jobs. Catherine joined Nucerity, a network marketing group in the health and skincare field, as a way to earn money in the years following the birth of son Samuel.
“The key attraction was the hope of building a future residual income where I could stop worrying about money completely, by putting in the groundwork today,” Mrs Mihalas said. “My plan is to eventually retire from nursing with this as my main income.”
Mrs Mihalas did not originally focus on what her tax obligations might be, until the company suggested during her onboarding process that she discuss it with her accountant.
“I’m still at a stage where what I’m doing is considered a hobby; I haven’t yet passed the threshold where it will be considered a business,” Mrs Mihalas said. “But I believe that when I reach that stage, the benefits of the program will outweigh the tax obligations.”
Husband Gabriel set up a side business in aerial drone photography, to combine a hobby with his background in aviation.
“It seemed like a great way to earn extra cash while doing something that I loved,” Mr Mihalas said. “I was aware of the tax implications from day one … I knew which records to keep to stay on track.
“I’d like to think it will become a significant additional revenue stream for our family.”
Originally Published: www.sunshinecoastdaily.com.au
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