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Tax planning for Moreton property investors

Investing in property – tax planning

This is an important article for anyone that is wanting tho ensure that they do not pay too much tax.  There are plenty of deductions that every property investor can claim, so make sure that you claim them all.tax planning for moreton property investors

Owning an investment property can be a financially rewarding experience despite the big cash outlay. With a little tax knowledge and some professional advice, you may be able to claim a majority of the expenses associated with the purchase, ongoing maintenance and the process of generating income from your investment property, as tax deductions.
Here is a list of the claimable expenses that you should be including in your tax return to maximise your savings.
Advertising for tenants
This is a claimable expense providing it’s strictly advertising for tenants if your property is available for rent. These costs include advertising with local real estate agencies and posting advertisements in newspapers or local publications. Advertising for the sale of a property is a capital expense and can only be taken into consideration as part of the cost base of the property on disposal.
Bank charges
The bank charges on your loan account (usually in the form of monthly fees) are tax deductible as well as any bank charges on a separate bank account that you have specifically for your property.
Body corporate fees
These are generally paid quarterly and cover the running costs of the building. It covers repairs, insurance, gardening, communal lighting, pest control, etc.
Borrowing expenses
These are costs associated with the borrowing of money required to purchase the property and although are not deductible upfront, they are deductible over the shorter of either the period of the loan or five years. These include mortgage insurance, title search fees, registration of mortgage, costs for preparing and filing mortgage documents, mortgage broker fees, valuation fees, stamp duty on mortgage and loan establishment fees.
Capital works
You can claim a tax deduction for construction expenditure, or capital works. The deduction is spread over 25 or 40 years depending on the type of construction and the year in which the construction was completed. The construction costs of a newly built property are deductible over 40 years. To maximise your tax deductions you can obtain a quantity surveyor’s report, which will list the year of construction, the construction costs, and the deductible amount each year.
Council rates
Council rates are imposed on landowners to help fund the cost of community infrastructure and services to the local municipality. Councils generally offer a one-off annual payment or a payment plan of quarterly instalments and all payments are tax deductible.
Decline in value of depreciating assets (also known as “Depreciation”)
To maximise your tax deductions you can obtain a quantity surveyor’s report which shows, in detail, the value of the deduction to which you are entitled based on the assets you own in the investment property. Alternatively, you will need to supply your accountant with information to support the purchase date and purchase price of each asset. Depreciating assets produce a partial tax deduction as these assets decline in value over time, usually over more than one year. Depreciating assets commonly found in residential rental properties include: air conditioning units, removable floor coverings, window curtains and blinds, dishwashers, furniture, heaters, hot water systems, refrigerators and freezers, stoves, cook tops and range hoods, swimming pool filtration and cleaning systems, television sets and washing machines.
Gardening and lawn mowing
This is deductible and includes dump fees, mower expense, tree lopping, replacement garden tools, fertilizers, sprays and replacement plants.
Insurance
Insurance can be purchased to protect your investment properties. Insurance cover is tax deductible and can protect you against circumstances including loss of rent, rent default, theft by a tenant, building damage and public liability claims.  mortgage insurance is not immediately claimable but is amortized/depreciated over time as part of borrowing expenses.
Interest expenses
Interest charges on a loan are tax deductible. Principal or capital repayments are not tax deductible. Only the interest component directly related to your property is tax deductible. If you are paying principal and interest on your loan then you will need to calculate the interest component for the year. Locate the bank loan statements for each investment property to ascertain the interest paid for the income year.
Land tax
Land tax is tax deductible. Land tax is a tax levied on the owners of land and it is based on the value of land. Once you’ve completed a land tax registration form, you will be sent an assessment notice showing the land tax payable on the land you own. You will be liable for land tax if you own, or part-own: vacant land, a holiday home, an investment property; or a company title, retail, commercial or industrial unit.
Legal expenses
Legal expenses are generally incurred during the sale or purchase of an investment property. The legal costs for buying and selling a property are not tax deductible and are included in the capital gains tax calculation. Tax deductible legal expenses include the costs of evicting a non-paying tenant and the costs of terminating a lease.
Pest control
If you pay for your investment property to be sprayed or fumigated, you will generally be entitled to a tax deduction.
Property agent fees or commissions
A property agent charges fees for maintaining a property on your behalf. The charges for the year-end financial statement, reference-check fees, leasing fees and monthly rental statement fees are all tax deductible. You will receive the net rental income after the property agent deducts their monthly fee.
Repairs and maintenance
A repair is generally tax deductible. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. Renovations, improvements, replacements and extensions are generally deductible over more than one year.
“Repairing” is restoring the item to the condition it was in before it deteriorated without changing its essential character. If you “replace” an item with similar parts/materials then it is also a repair even though you repaired the entire item. If the item is “repaired” with improved parts/materials, which will improve the function of the item or extend its life then it would be considered as an improvement and need to be included as a new asset.
Stationery
Keep a record of all your stationery and postage expenses for the year. Don’t dispose of your records. This is an often overlooked tax deduction by investment property owners.
Tax-related expenses
The cost of obtaining tax advice from a registered tax agent is tax deductible. Tax preparation fees and accounting charges are also tax deductible.
Telephone expenses
Telephone calls directly related to the running of your investment property are tax deductible.
Travel undertaken to inspect the property or to collect the rent
Investment-related travel and car expenses include airfares, car hire, taxis and accommodation. These expenses are tax deductible if you incur these costs while collecting the rent, inspecting the property, or travelling for some other reason related to your investment property.
Water charges
Water rates are tax deductible if you, not your tenant, pay the water bill.
Whilst the above expenses are the most common deductibles on investment properties they may be other deductions that you are entitled to specifically relating to your investment property.

 We thank Nila Sweeney for this informative article, which first appeared on yourmortgage.com.au on 26 February 2013.
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Opinion

Stamp duty v land tax: the pros and cons explained

tax

Housing affordability continues to be a hot topic and the often-raised suggestion of replacing stamp duty on the sale of a property with a universal land tax is back on the table again.

The idea has been around for more than a decade after former Treasury secretary Ken Henry claimed that stamp duty not only is a disincentive for people to move, but also gives state governments erratic income – their coffers overflow when the property market is booming but withers away when the market slumps.

The NSW government is dusting off the idea again by commissioning a consultation paper and inviting interested parties to provide their views until July 30.

The proposal envisages that a homebuyer could either opt to pay stamp duty on a property purchase price, or an annual land tax that would be based on a property land value that would then be attached to it forever. In other words, once a purchaser opted for the annual land tax option in lieu of stamp duty, there would be no going back.

In the event of the scheme proving popular, the paper envisages a price threshold based on the value of the property. If that was the case, a buyer of a $5 million property could still be liable for stamp duty on its purchase and could not opt to pay land tax instead.

State governments receive more than $20 billion a year from stamp duty, so any introduction of a new scheme would need to be phased in.

The proposal floats the possibility of the amount of stamp duty forgone being capped at, say, $2 billion a year in the early years, with the cap changing over time as the number of people opting out of stamp duty increases.

Proponents of the scheme claim that the property market would boom because buyers could use the extra money now required for stamp duty to increase their home deposits and qualify for bigger mortgages. However, this begs the question, do we really want to encourage homebuyers to take out even bigger loans? After all, interest rates are at rock bottom and must rise in the future.

If you think mortgage stress is bad now, imagine what a 2 percentage point rise in mortgage interest rates would do.

The biggest problem with a tax based on land values is that, in many states, it is common practice to leave the rate of land tax unindexed, which means that each time a property increases in value, the land tax bill increases, too.

A homeowner who chose the land tax option would most likely be faced with an increasing land tax burden as the years passed. This could be particularly hard on retirees, who could see their home costs increase while their capital decreases.

Another major flaw in the proposal is that it would likely provide a “free kick” for property speculators. It is generally accepted that speculators competing with regular homebuyers has been a major reason for property prices soaring to record highs.

In NSW, a person who buys a property today for $800,000 would pay stamp duty of $31,335, irrespective of whether or not it is their primary residence. This large upfront cost is a major disincentive for speculators who want to buy property now and quickly flip it.

However, speculators may have a field day if they could choose an annual land tax bill instead of stamp duty. If they held the property for only a short time, there may be no land tax at all payable.

There is a further complication with the land tax proposal.

Investors already pay land tax on rental properties and this cost is usually passed on to their tenants.

It would be manifestly unfair if stamp duty – which is a capital cost, not a deduction – was waived on property purchases for investors, while continuing to allow them to claim a tax deduction for the land tax, which had already indirectly been passed on to tenants.

The land tax proposal is merely in the consultation stage. Let’s hope there are further deep discussions of all the pros and cons to avoid any potential property market disasters.

 

Article Source: www.brisbanetimes.com.au

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Tax News

Tax warning on share economy

ipswich investor

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.

Gabriel and Catherine Mihalas with a drone Gabriel uses for a second income stream. Picture: Simon Bullard

Gabriel and Catherine Mihalas with a drone Gabriel uses for a second income stream. Picture: Simon Bullard

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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Developments

Budget for Upcoming Transformation of the CBD Revamped

THE multi- million dollar revitalisation of the Ipswich CBD is set to be front and centre of the budget handed down by Ipswich Mayor Paul Pisasale today.

THE multi- million dollar revitalisation of the Ipswich CBD is set to be front and centre of the budget handed down by Ipswich Mayor Paul Pisasale today. (more…)

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