Build your Future with Smarter Property Investing

The Queensland property market is on the rebound after an increase in auction clearance rates in the first quarter of 2015. Despite the headlines, Queensland prices have often lagged behind those of our southern neighbours, but growth is on the horizon.

So now is a good time to find out how you can build your future by making smarter investments in property.

 

You can start by planning your property investment strategy as a new or existing investor to make sure you get the best return from your investment. Seek out the advice of a good accountant and get up to speed on some of the key topics in the world of property investing.

Gear up for a Tax Deduction

Property investors have to pay tax on any income they earn from their investment property including rent, any rental bond paid by tenants, and letting and booking fees.

They can also claim a tax deduction for the associated expenses of renting an investment property including management and maintenance costs, borrowing costs, depreciation, and any capital expenditure on the property.

Negative Gearing is when the income is not high enough to cover the costs so the net effect is a tax deduction.

Despite being regularly in the news many pundits don't believe that negative gearing will be abolished outright any time soon mainly because property investment is popular in Australia and the number of taxpayers reporting net rental losses has more than doubled over the last 20 years.

The abolition of negative gearing would risk a slump in property prices as over-stretched investors offload their properties, and with interest rates already very low softening the blow with a rate reduction wouldn't be feasible.

There would also be a drop in properties available for rent at a time when rental stock supply is already struggling to keep up with demand.

Pay Less as You Go

If you are a negatively geared property investor you may not need to wait until tax time to realise the cash flow benefit of your investment property losses. Investors can apply for a PAYG Withholding Variation which means their employer withholds less tax from their salary during the year.

This is based on an estimate of the expected tax refund as a result of those property losses and can involve some complex calculations.

No Gain No Pain

A jump in the value of your investment property is generally good news but if you are planning to sell then you will need to earmark a bigger proportion of the profits to pay Capital Gains Tax (CGT).

If you've owned your investment property for more than 12 months then capital gains tax is payable on 50% of the profit you make when you sell it. If it's less than 12 months then you pay CGT on the all of the profit.

Capital losses – where the asset is sold for less than you paid for it - can be used to offset capital gains in the same or future years.

Timing is important when selling an investment property as a CGT liability generally occurs at the contract date, regardless of whether there are conditions attached such as finance approval.

Change of ownership or compulsory acquisition will also trigger a CGT event.

Selling an investment property needs to be considered in the context of all of your tax affairs particularly at the end of the financial year or in respect of multiple CGT assets, such as shares or other investments, in order to minimise your exposure to tax and maximise the advantage of any tax benefits.

Become a Super Hero

Buying property through a Self-Managed Super Fund (SMSF) has become an increasingly popular way of establishing an investment portfolio and many SMSF are set up with the sole purpose of investing in property.

Access to more funds and the ability to leverage those funds and increase them with bank borrowings mean that an SMSF is generally able to invest in a higher value property.

But while you might be able to invest in a bigger property or multiple properties, any capital growth or income from renting out those properties is held in the super fund and cannot be accessed until the fund beneficiary has reached preservation age.

This could be something to consider if that's not far off but understanding what you want to achieve from your investment portfolio, for example an immediate income stream, is key to making the right investment decisions.

The tax benefits from holding your investment property in a SMSF are less since tax rates are generally lower inside super and SMSF also have significant administrative and reporting obligations.

For more detailed information on what's involved in setting up and managing a SMSF visit our education pages here.

Property investment is complex and to be confident of putting in place the best investment strategy for your goals you need the specialist skills of an accountant.

Wilson Teis has those specialist skills, and we can help you make the right decisions as a property investor.

Call Wilson Teis today for an informal discussion on how we can help you better manage your property investments.