Get Expert Help to Build a Solid Financial Future

As a plan for the future, property always looks like a wise investment. It offers both the potential for rental income and capital growth, and it can be a more stable option than other investments such as shares.

With historically low interest rates in Australia making access to finance even simpler, it’s easy to see why over 1.8 million Australians were recorded as owning an investment property in 2015.

Increased ownership brought with it increased scrutiny from the ATO, who targeted investors in 2015 due to concerns about the loss of revenue from over deductions. But eligible deductions are only part of the tax landscape you need to be aware of if you are planning to include property investment in your financial plan for the future.

Thinking of Investing?

Property is just one ingredient of the recipe for a successful financial future, and like any good recipe each ingredient needs to be considered with the other ingredients in mind. Whether you are buying alone or as part of a co-ownership agreement, for example as a husband and wife, how you structure the purchase will impact on your potential tax liability.

In the eyes of the ATO it’s the legal interest of a co-ownership set up that determines how any annual profit or loss is allocated, regardless of other agreements that might exist between the parties. And if you don’t understand how your property purchase fits in with your overall current and future financial plan it could leave you exposed to potential capital gains tax liabilities that some smart planning could have guarded against.

Wilson Teis can help you with your financial future and help you understand how any property investment might impact on it.

Thinking of Tenants?

Once you’ve signed on the dotted line just owning an investment property doesn’t mean all related expenses are suddenly eligible for a tax deduction. Any costs incurred when the property was not available for rent are not eligible. Although some expenses you paid getting the property ready to rent might qualify.

Interest on any loans taken out to finance the purchase may still be deductible before you’ve started advertising the property for rent. As will expenses such as sewage and water rates or council fees. Any expenses you incurred buying the property such as conveyancing or stamp duty are not deductible. Instead they become part of the cost of the property and any tax deduction will only happen when the property is sold and any CGT liability is reduced as a result.

Eligible income can include more than just the weekly rent you charge. Related income such as insurance payouts that compensate for lost rents, reimbursements for deductible expenses, or government rebates for the purchase of depreciable assets such as solar hot water also need to be declared. And remember you need to keep detailed records to support the rental income and related expenses you include on your tax return for five years from 31st October or the date of lodgement if it’s later.

The responsibility of owning a rental property takes many new investors by surprise. Wilson Teis can help you navigate the tax landscape and provide advice on effective record keeping.

Thinking of Subdividing?

If you’re thinking about downsizing, splitting a big block of land to build a second property for future sale or rent can seem like a great idea. But like most things in finance timing can make a big difference to how much tax you end up paying. Your home and any adjacent land, up to 5 acres, is usually exempt from capital gains tax but the subdivided block isn’t and will be subject to CGT if you end up selling it.

The subdivision itself won’t trigger a CGT event but the original cost of the whole property determines how much the new block ‘cost’ and what tax you could end up paying. How long you have lived in the original property and how long you owned before you subdivided can all impact on any potential tax you might have to pay.

Property transactions are complex, and cannot be untangled once they have been undertaken so make sure you get professional advice before you decide to subdivide.

Thinking of Selling?

If you are thinking about selling your investment property it also pays to get professional advice to minimise your potential CGT liability. This is especially true if you own more than one property or have other assets that might also be subject to CGT.

Making sure you sell in the right order can be the difference between offsetting a gain with a pre-existing loss, and ending up with a big tax bill. Wilson Teis have the technical expertise to help you manage your investment property from the time you buy to the time you sell, and we can help you get the best possible income tax and capital gains tax outcome.

For a complimentary informal chat on how we can help manage your investment property as part of your financial plan contact us today.