A Tax Refersher on Real Estate Returns
If you own a rental property or you rent out all or part of your home then chances are you’ll be liable for Capital Gains Tax (CGT) or Income Tax and possibly both.
So here’s a quick reminder of some of the key issues you need to consider and few tips on the best timing for your year-end cash flow.
Maximise your Capital Gains
If you sell your investment property for more than you paid for it then the profit you make is liable for CGT.
If you are planning to sell in the coming months consider waiting until after 30th June 2016 to get the maximum cash flow benefit. Capital Gains are effective on the contract date not settlement date. Any gain crystallised from 1st July onwards will be taxed in next year’s return but you will only have postponed receipts from the sale by one day.
Refer to your records to make sure all renovation costs that can be, are included in the cost base of the property to reduce the overall taxable gain where possible.
If you have built and sold a new home then the ATO can consider it to be a property development and you will be liable for GST on the sale, but you can claim GST on the construction costs and any purchases related to the sale.
Rental Ins and Outs
If you rent out your home or an investment property any rent and rent-related income such as withheld bond payments or reimbursements for damages need to be included in full on your tax return.
If you recently joined the many thousands of Australians listed on Airbnb who are earning a few extra dollars from renting out their spare room then you also need to include this income on your tax return. It’s likely you will also have to pay some CGT on any profit you make when you subsequently sell your home.
Expenses related to renting your property are potentially tax deductible but only if your property was rented or available to rent when the expenses were incurred.
If you are planning to undertake some repairs on your investment property then do it before 30th June to get the maximum cash flow benefit. Talk to us about intended repairs as not all repairs are tax deductions.
Document Everything
Record keeping is the surest way to get the benefit of every claimable deduction as well as being confident you’ll never expose yourself to penalties or unexpected future cash outlays for any mistakes on your return.
Record rental income as well as deductible expenses along with the costs of buying and selling any properties including contracts, conveyancing and loan documentation. To ensure full compliance you need to keep these documents for five years.
It’s never too soon to start planning for the end of the tax year. Contact us today on 07 3255 1455 to book in your year-end tax return meeting and get a head start on the rush.
