It's Tax Time - 5 top Tips for Investors
With End of Financial Year deals and Tax time looming, now is the time to ensure you are able to claim your full deductions....
1. Pre-pay interest
If you have a fixed-rate loan and have an annual income that’s on close to being in the next tax bracket, it’s often worth considering pre-paying your interest for the next 12 months, as this will allow you to claim the deduction in the income year in which you’re lodging your tax return.
You can use this approach when paying for other services, too. And some service providers might offer you a discount for doing so.
2. Interest expenses
What you can claim
You can claim the interest charged on the loan you used to:
- purchase a rental property
- purchase a depreciating asset for the rental property (for example, to purchase an air conditioner for the rental property)
- make repairs to the rental property (for example, roof repairs due to storm damage)
- finance renovations on the rental property, which is currently rented out, or which you intend to rent out (for example, to add a deck to the rear of the rental property)
- purchase land on which to build a rental property.
You can also claim interest you have pre-paid up to 12 months in advance.
What you can't claim
You can't claim interest:
- you incur after you start using the rental property for private purposes
- on the portion of the loan you use for private purposes (for example, money you use to purchase a new car or invest in a super fund)
- on a loan you used to buy a new home if you do not use the new home to produce income.
3. Depreciation schedule
Did you know that if you owned or entered into a contract for a rental property before 7:30pm on 9 May 2017, you can claim deductions on the decline in value of the depreciating assets that were in the property before that date.
If you bought it after this date, you can only claim depreciation on brand-new assets, or if the property was newly built or substantially renovated and no one had previously claimed any depreciation deductions on the asset. The type of items including the building and permanent fixtures and fittings - eg carpets, light fittings, appliances, window furnishings. It is a great idea to have a schedule done from the time you purchased and give to our Accountant at tax time each year.
4. Apply for PAYG Withholding variation
Complete the PAYG withholding variation application (NAT 2036) to vary or reduce the amount of pay as you go (PAYG) tax withheld from income paid to you in the application year.
This application is non year specific and valid for one financial year. If you apply in May or June, the variation will apply to the financial year starting from 1 July.
You can lodge your application during the year. The last date for lodgment is 30 April of the application year.
The main purpose of varying or reducing the amount of withholding is to make sure that the amount withheld during the income year best meets your end-of-year tax liability. For example, you may want to apply for a variation if the normal rate of withholding leads to a large credit at the end of the income year because your tax-deductible expenses are higher than normal.
If you have business income or non-commercial business or partnership losses you will also need to complete the PAYG withholding variation supplement.
5. Minimise Capital Gains Tax (CGT)
If you are trying to sell your property and achieve a nice capital gain, consider signing contracts after 1 July to defer tax for another year.
It's important to establish the timing of a capital gains tax (CGT) event because it tells you in which income year to report your capital gain or loss, and may affect how you calculate your tax liability.
If you dispose of a CGT asset, the CGT event usually happens when you enter into the contract for disposal. In the case of real estate, for example, the CGT event generally occurs when you enter into the contract – that is, the date on the contract, not when you settle. If there's no contract, the CGT event generally happens when you stop being the asset's owner.
If your CGT asset is lost or destroyed, the CGT event happens when you first receive compensation for the loss or destruction. If you don't receive any compensation, the CGT event happens when the loss is discovered or the destruction occurred.