10 Tax Savings Tips That Will Help You When Buying Investment Property
By Ben Mabelson, Journalist.
Chances are you are considering buying a property investment or you already have one. There are several advantages you stand to reap from investing in property especially in the current property market. However, many potential property investors are put off by the strict compliance and tax issues that are inherent in the world of investment property. The following are 10 tax saving tips that will help you when buying investment property in Sydney.
Fully Deduct Interest Expenses In Your Return
The interest expenses for loans used in buying property investment in Sydney are fully deductible. In determining whether interest expenses are deductible, the ATO focuses on the purpose of the loan and not on the underlying asset that was used as collateral. Moreover, you can fully deduct qualifying interest expenses even if construction of the property has not yet begun.
Claim Depreciation On Several Assets
Many investors who specialize in buying property investment in Sydney either do not claim depreciation at all or underestimate their depreciation claim by sticking to low depreciation claims on buildings, furniture and fittings. You will be surprised to know that even old properties qualify for a reasonable depreciation deduction provided you have used a specialist quantity surveyor to prepare a comprehensive depreciation schedule.
Reduce Capital Gains Tax By Adding Certain Costs
Capital gains tax is tax levied on the difference between what it cost you to get an asset and what you received when you disposed of it. You can reduce your capital gains tax on disposing of property in Sydney by adding back certain costs such as repairs and maintenance and costs entailing personal use of property(other than main residence) to increase the cost base you used to acquire the asset thus reduce the resulting capital gain.
Claim Tax Deduction On Items Demolished During Demolition
It is common practice to undertake renovations after buying property investment in Sydney. You can claim and immediate tax deduction on all items demolished/ disposed of provided a quantity surveyor has duly prepared a demolition or scrapping schedule showing the value of the items.
Fully Deduct Land Tax Costs
You will be hit by land tax costs after buying property investment in Sydney. The good thing is that you can fully deduct land tax costs in your tax returns.
Claim 50% Tax Concessions Twice
If you sell a property in Sydney that you used in your normal business operations, you can qualify for the 50% small business exemption. What?s more? You may also be eligible for the 50% Capital Gains Tax (CGT) general discount.
Include All Possible Costs Relating To Property Investment
When buying property investment in Sydney or selling such property, it is prudent to include all possible associate costs such as agent?s fees, costs associate with marketing the property such as touch up paint, conveyance to buy and sell and the balance of borrowing costs (which are amortized over 5 years).
Deduct Balances In The Case Of Refinancing
Should you choose to refinance the loan you used in buying property investment in Sydney, you can expense (deduct) the original borrowing costs or exit fees.
Maximize Negative Gearing Benefits By Investing Through A Trust
The tax advantages of negative gearing are maximized through holding property investment in Sydney via a unit trust or a hybrid discretionary trust. This is because if you are a high income earner, you will be able to offset the loss from the property with income in your return. What?s more? Once the property starts returning positive cashflows, you can distribute the rent to low income earners.
Get The Timing Of Sale Of Property Investment In Sydney Right
For CGT purposes, property is deemed to have been purchased at the date of the contract and not the date of settlement. If you purchase a property investment in Sydney with the intention to keep it and sell it after 12 months, you will be eligible for a 50% CGT discount. If you sell the property before 12 months on the other hand, you will not qualify for the 50% CGT discount. You can however use the capital gains in the second case to offset any capital losses that you may have.
These 10 tax saving tips will go a long way in helping you preserve your property investment in Sydney. Always speak a professional financial advisor to seek clarification on any of the tips. Ask a question or get assistance using our online enquiry sevice, click here.