October 19, 2018

What Do You Need to Know about Property Income Tax?

If you’re an Australian property investor, there are many factors to consider. Investing in rental property involves keeping your records straight from the beginning to ensure that your operations will run smoothly and in accordance with appropriate laws and guidelines.

One of the many things to consider is income tax. Good record-keeping of receipts is necessary if you have an investment property. You need evidence for when you make claims. These include the rental income and the deductible expenses that you pay for five years from the date that your tax return is lodged. Records of the date and the price of the property are also necessary to know any capital gain or loss in case you need to sell the property. Record-keeping likewise includes details of repair and/or improvement costs.

As an Australian property investor, you can legally lower your tax bill. Here are some of the things that you can do:

Hold the property for one year before selling it

Make sure that you are the owner of the property for at least a year before putting it up for sale. If this is the case, you are entitled for a 50 percent discount on the rate of capital gains tax. In general, you will be required to pay the CGT on your rental property. If you lived in your property for a certain period of time then made it a rental property, you need to pay CGT for the time when you didn’t live in it.

Pay rental property expenses up to one year for immediate tax deduction

These expenses include body corporate fees, insurance, and interest. This prepayment must be for 12 months or less, and must end on or before the 30th of June. Of course, it’s important to check your tax status for that financial year to ensure that paying the property expenses in advance will give you the benefits of negatively gearing your property.

Claim all allowable deductions on your rental property

You can use an app to record all of your property-related expenses. The Australian Taxation Office has a free app that allows you to manage and tag receipts of your expenses for your tax return.

Property income tax is something that you need to deal with as an Australian property investor. Seek advice from a qualified individual so you can better understand the ins and outs of this tax type.

Got other ideas on property income tax in Australia? Share your insights in the comments section.

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What You Need to Know about Stamp Duty

If you’re buying a house, you will have to pay a tax called stamp duty. This is a tax on the transfer of property which covers expenses related to changing the property title and ownership. In this article, we discuss some of the key things you need to know about stamp duty:

  1. How will you know the amount of stamp duty that you need to pay? It depends on the state or territory where your house is located. Some states impose a higher stamp duty than others. The cost of the property will dictate how much stamp duty you should pay. Another factor is the type of house that you want to buy. For instance, you will pay a lower stamp duty for a piece of land, as compared to a house.
  2. Stamp duty is calculated using rates set by the state or territory that you live in. If you are in Queensland, Victoria, Tasmania, NSW, the Northern Territory or Western Australia, stamp duty will be computed using the purchase price of the property or the estimated value, whichever is larger. On the other hand, if you live in South Australia, it is calculated according to the value of the land including the improvements or the purchase price, whichever is higher.
  3. Depending on the state you live in, you may be eligible for some exemptions from stamp duty. For instance, you may pay less stamp duty if the value of your house or the amount you paid for it is less than a threshold amount in your state. You may also pay less stamp duty if you’re a first home buyer. Also, you may get an exemption if you are receiving government benefits. You can ask your local Office of State Revenue if you want to know more.

Do you have other ideas on stamp duty and property tax in Australia? Share your insights in the comments section.

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Tax Deductible Expenses in Rental Properties

An Australian property investor needs to deal with a lot of things. One of these is tax. If you have a rental property, there are tax-deductible property expenses that you should know. If you own a rental property and you get an income from it, you can make claims on any expense incurred in earning that income.

These are deductions from your taxable income that are associated with operating your rental property. Bear in mind that it is still better to seek professional advice so you will have a better understanding of what you can and cannot claim.

You can claim numerous expenses that are related to running and managing your rental property. However, it will apply only for the period that your property was rented or available for rent.

Here are the tax deductible expenses in rental properties you can claim:

  • advertising for tenants
  • bank charges
  • body corporate fees and charges
  • borrowing expenses
  • capital works
  • cleaning
  • council rates
  • depreciation of assets
  • gardening and lawn mowing
  • insurance
  • interest expenses
  • land tax
  • legal costs
  • pest control
  • phone usage
  • property agent fees and commissions
  • repairs and maintenance
  • stationery and postage
  • travel done to inspect or maintain the property, or to collect rent
  • water charges

It is likewise important to know the expenses that you cannot claim when it comes to your rental property. Expenses you cannot claim include the utility bills which are paid by your tenant/s, as well as those that are related to your personal use of the rental property.

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What is a Franked Dividend?

An Australian investor can receive rewards for investing in a company.  These can be in the form of share of its earnings, more commonly known as dividends that are distributed to all the shareholders of the company. In general, dividends are paid twice a year. However, since it is based on profits, the size of the dividend varies, and there’s no guarantee that you will receive any.

There are two types of dividends: franked and unfranked. A franked dividend refers to the dividend that has a tax credit attached to it. On the other hand, the unfranked dividend lacks a tax credit. In this article, let’s focus on franked dividends.

Here are the top 7 things that you need to know franked dividend: 

  1. It’s commonly known that companies pay tax for their profits. Franked dividends refer to dividends or profits that are distributed after tax. It comes with a franking credit, also called imputation credit, that indicates the amount of tax that is paid by the company.
  2. 1987 was the year when the dividend imputation was introduced to end double taxation of the profits of the company. With this setup, tax that was paid by the companies was attributed to their respective investors.
  3. Companies pay tax at 30 percent. The remaining 70 percent cash can be paid as dividends to the shareholders.
  4. Based on how much tax the company had already paid, the dividend can either be fully franked or partly franked.
  5. When it comes to profits overseas, there will be no credits for tax paid. In other words, companies that earns income from a different country or doesn’t pay tax in Australia will pay unfranked dividends.
  6. Shareholders also pay tax on the income at the marginal tax rate. This happens when the companies pay portion of their income as dividends. On the other hand, the shareholders will receive a personal tax credit, also called a franking credit, from the tax office.
  7. In some cases, there are banks that pay dividends of nine percent after franking credits are considered. In this way, there is a better return compared to depositing the money that may only give you about one to two percent interest.

These are just some of the things that you need to know about franked dividends. It’s better to seek professional advice to better understand the ins and outs of this type of dividend.

Do you have other ideas on franked dividends and investment property tax in Australia? Share your insights in the comments section.

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Understanding Tax Depreciation for Properties

Depreciation is an important element of any investment property strategy. Any Australian property investor would know that tax depreciation will help their bottom line when the time of paying tax comes, since they can claim tax depreciation against their taxable income. A depreciation schedule reduces the taxable income and therefore lowers the amount of total tax payable. The contents of the building as well as the cost of the building itself are entitled to tax depreciation.

There are two types of allowances – depreciation on Plant and Equipment, and on Building Allowance. Plant and Equipment refers to the contents of the building, while the Building Allowance refers to the construction expenses of the actual property.

Are all properties eligible for tax depreciation? In general, you can get investment property depreciation deduction for both old and new properties.New properties generally achieve a greater rate and and overall amount of depreciation. This is because property investors can achieve the maximum Capital Works Allowance, and make the most of low cost pools and immediate deductions for certain assets.

If your residential property was constructed after July 1985, you can claim depreciation on Plant and Equipment as well as the Building Allowance. But if it was built before that date, you can only claim depreciation on Plant and Equipment. Bear in mind that different cut-off dates apply to commercial and industrial buildings.

If your property is renovated, you can also claim tax depreciation. The ATO needs to know the amount you’ve spent on renovations. In the event that you don’t know the renovation costs, for example, since the former owner finished the renovations, the ATO will assign a trained Quantity Surveyor to inspect the property and make an estimation.

To know the amount of depreciation schedule, a qualified Quantity Surveyor will check and ensure that all items to be depreciated are listed down and photographed. This can be used in case an audit is necessary.  According to the Australian Institute of Quantity Surveyors Code of Practices, it is necessary to roll out inspections to meet ATO requirements.

These are some of the things that you need to know about tax depreciation for properties. Learning the different aspects can be a challenge, so ask a qualified individual if necessary so you can better understand how property tax depreciation works.

Do you have other ideas on property tax and tax depreciation for property? Share your insights in the comments section.

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Body Corporate Fees Explained

What is a body corporate? This is created when an Australian property investor buys into a building or complex that has several properties. The unit plan is registered at the Land Titles Office and all owners will be members of the body corporate, which is responsible for managing the common areas such as swimming pools, gyms, gardens, elevators, and parking spaces of the development or complex on behalf of all owners. In other words, body corporate maintains the property.

They render services, so obviously body corporate will charge fees. These are the mandatory charges that each unit owner pays for keeping the common areas in good condition.

In this article, take a look at the different body corporate fees: 

  • In general, the body corporate charges an annual levy. This is used to cover the day-to-day expenses including maintenance, insurance premiums, administration, as well as utility costs for common services including lighting outdoors.
  • There can also be one-off charges for certain items that are not covered by the annual fee. One example of this is when the lift needs replacement.
  • The body corporate will ask you to pay for the repair and/or maintenance when something is done only on your own unit.
  • How much are body corporate fees? The cost varies. It depends not only in the size of the unit or if it comes with a car park or not, but also on the type of building. For instance, expect higher fees if you live in a high-end or mid-sized building.

On the other hand, smaller buildings have lower fees because these are less expensive to manage and maintain. When it comes to a larger building, there are more owners who contribute to the total costs. However, running it becomes more expensive and complicated since withe the economies of scale, the cost per unit owner is reduced considering the large number of owners who share the cost.

The facilities drive body corporate fees. Of course, if the building offers a wide range of facilities including a swimming pool, fitness center, and large gardens then the fees will increase.

Got other ideas when it comes to body corporate fees? Share your investment property advice in the comments section.

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Negative Gearing vs Positive Gearing

As an Australian property investor, there are several aspects that you have to deal with. One of these is the investment property tax. When you generate income from your property, you have to pay the right taxes. Another aspect that you need to know is gearing. It means borrowing money to invest in a business, property, or funds. An investment can be positively or negatively geared depending on the cost incurred and the income generated. If your investment generates profit, it is positively geared. On the other hand, when the income is less than the cost of managing the investment, it is negatively geared.

Gearing can be a positive or a negative. In this article, know more about the differences between positive gearing and negative gearing:

Positive Gearing

Positive gearing is also referred to as “cash flow property” simply because it generates more money than the expenses from the investment. You benefit from the income that can also be used for other purposes, and this can put your finances on favourable conditions. With positive gearing, you can diversify or venture into other investments that can potentially generate more income. However, the income you generate is taxable. The higher the income, the higher your tax obligations will be.

Negative Gearing

Negative gearing, on the other hand, occurs when the income you generate is less than the cost of owning the investment. So you need to be prepared for the losses that you incur. It is a negative cash flow, but this will reduce your taxable income. A negatively geared investment appreciates in value over time.

Positive vs Negative

Negative gearing is a common strategy that is used to minimise property tax. Take note, however, that you need to reduce your income if you want a lower tax.

If you need to borrow money for your investment, make sure that it is positively geared. In this way, you can increase your income and at the same time, increase your investment returns.

Investment property tax, positive gearing, and negative gearing are just some of the terms that an Australian property investor will encounter. Have a better understanding of these aspects so you can make well-informed choices. It may be also be helpful to seek advice from a qualified individual so you can better understand these aspects and other terms related to investment property tax and gearing.

Got other ideas on property tax in Australia? Share your tips in the comments section.

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Everything you need to know about your rental income and expense

The real estate industry in Australia is continuously growing, with more and more people exploring opportunities to enter the market and buy properties for personal use or as investments. If you own a rental property, you can deduct expenses on your tax return. In this way, you can explore various tax deductions that can help increase your tax refund and get more from the rental income. The key is to keep track of all rental property tax deductions so you can make claims properly and boost your tax refund.

There are several things to take into account when you own rental properties. Two of these are: income that you must declare and expenses that you can and cannot claim.

Income that You must Declare

An Australian property investor with properties for rent should include the full amount of rent and other forms of income related to rend in the tax return. These include:

  • Rental bond money – amount in cases when a tenant defaults on the rent or if the property needs some repair or maintenance job
  • Insurance payouts – money received as compensation for damage to rental property or loss of rent
  • Booking fees
  • Payments due to normal or recurrent activities aimed to generate profit from using the property
  • Any excessive deductions for capital allowances
  • Government rebate as a result of buying a depreciating asset
  • Reimbursement for deductible expenditure

Bear in mind that goods and services tax or GST is not applicable to rental residential properties.

Expenses that You can Claim

For the period when your property is rented or available for rent, you can claim deductions for these expenses:

  • Costs on management and maintenance
  • Expenses that are deductible over several years – these include borrowing (loan establishment fees, title search fees, preparing and filing documents for mortgage), depreciation (decline in value of assets such as appliances, etc.), and capital works (construction expenses)

Expenses that You cannot Claim

Take note that you cannot claim deductions for these expenses:

  • Utility bills that are paid by your tenant
  • Acquisition and disposal costs, including expenses on conveyancing and advertising

As an Australian property investor, make sure to keep records of all documents and receipts so it will be easier for you to determine the expenses that you can and cannot claim, as well as the rental-related income that you must declare in your tax return.

Do you have other ideas on rental income, expenses that you can claim, and investment property tax? Share your investment property advice in the comments section.

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What You Should Know about Capital Gains Tax

An Australian property investor would have an understanding of the broad topic of taxation. This includes that different taxes that are related to assets and investments. People in this industry encounter terms such as investment property tax, income tax, as well as capital gains tax (CGT).

CGT refers to the tax that you need to pay for capital gain or loss on your asset/s. It is part of your income tax and is the difference between what you’ve paid when you’ve bought the asset and the amount you’ve received once you sold it. Here are other essential details that you should know about capital gains tax:

  1. If you’re an Australian resident, the capital gains tax will apply to all of your assets, within or outside Australia. If you’re a foreign resident, capital gain or capital loss will be applicable if it involves an assets that is classified as an Australian property that is taxable.
  2. CGT is not a separate tax. Instead, it forms part of your income tax. That is why the CGT will be paid as part of your income assessment for the current income year.
  3. If you make a net capital loss in a particular income year, you will not pay CGT. But remember that this net capital loss does not make you entitled to offset tax on other forms of income. It will just be carried over to offset capital gains in the upcoming years.
  4. There are assets that are exempted from CGT. These include personal assets such as your home, vehicle, furniture as well as other items intended for personal use. Also, CGT is not applicable to depreciating assets such as fittings and business equipment.
  5. If you have a CGT asset which is held for over a year before selling it, you can be entitled to a 50% discount on your capital gain. However, this will apply only if you do not have other capital losses.
  6. Keep a good record of all necessary documents. Make sure to keep all initial sale contracts, interest paid on related borrowings, valuations, receipts, and expenses reports. With all the necessary documents on hand, it will be easier for you to know how much you need to pay for the CGT.
  7. Rates of CGT differ among individuals and companies. For individuals, the rate is the same as the rate of the income tax for the given year. On the other hand, a company is not eligible to get a CGT discount. For any net capital gains, it is required to pay 30% tax.

Do you have other ideas about capital gains tax and property tax in Australia? Share your insights in the comments section.

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What is Investment Property Tax Deduction?

Buying a property in Australia is a form of long-term investment. If you’re planning to buy property anytime soon, there are several aspects that you need to know. One of them is the investment property tax deduction.

There are tax consequences and deductions that you can claim when it comes to investment property. Here are some of the things that you need to know about investment properties and how these affect your tax return:

  • If the property is for rent, the income received from it is taxable to the property owner. The rent must be declared on the year when it is received, and the rent must be within normal market rates so you can claim all of the expenses. If the rent is below market rates, you can only claim tax deductions up to the amount of rent.
  • When it comes to interest claims, the interest paid on the loan that is used to buy the property is tax deductible, as long as the loan was used to purchase the property.
  • Repairs and maintenance that are done to the property during the period that it is leased are generally tax deductible.
  • Improvements which are carried out to the property are usually not deductible in full. Some choose to depreciate and claim during their effective life.
  • You can manage your own property or hire a managing agent who will do all property management-related tasks for you. Should you do the latter, the management fees that you will pay are tax deductible.
  • Landlord insurance offers protection in case your tenant leaves the property without paying the rent, or if he/she causes damages to your property. The cost of landlord insurance is generally deductible.

So how do you calculate tax payable and deductible on an investment property? You can use a property tax calculator online to give you an idea on your tax deductions and the potential returns from your investment property. However, it is always better to seek assistance of a professional so you will better understand your tax deductions and other aspects related to your property.

Do you have other ideas on investment property tax? Share your investment property advice in the comments section.

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