7 Top Tips For Property Investors
Investment returns come in many shapes and sizes and fall into two main baskets being; make more money and lose less money. At Chan & Naylor we call the latter “stop the leakage”. With the uncertainties of the market the astute investors need alternate strategies to increase both capital and rental returns.
The following article looks at 7 top tips to improve the overall return of your investment.
1.Purpose of The Loan
All too often we see loans incorrectly structured and the investor losing the ability to claim interest expenses as a deduction. This is particularly evident when using the family home as security. Banks like to make life easy for themselves and so structure the loan accordingly. In many instances the bank just tops up the home loan and without specific evidence that funds were borrowed for the investment the ATO is in an easy position to deny the interest expense. You should always ask for a split loan with a separate bank statement identifying the funds borrowed for the investment property.
2. Land Tax
The various state governments apply land tax and within each state different entities have the ability to claim a land tax threshold thereby reducing the land tax liability. In many instances once an individual reaches the threshold they can purchase additional properties in a new entity such as a trust (specific to each state), a company or a self managed superannuation fund to give them an additional threshold. The costs of the structure are quickly recouped in land tax savings with minimal additional annual costs.
Many investors either do not have a depreciation schedule or use poorly qualified persons to prepare the schedule. This is money for nothing and a property specialist quantity surveyor must be engaged for this task to yield the investor maximum benefits.
4. Scrapping Schedule
In this age of renovations another opportunity exists to recoup some of your costs by getting the taxman to pay for the fixtures and fitting you throw away. A scrapping schedule is prepared by a suitably qualified quantity surveyor. They come in before the renovations begin and put a value on all the items destined for the skip bin. The total is written off allowing the investor to claim these costs as an immediate expense. The quantity surveyor would be brought back on completion to prepare a depreciation schedule on the new work.
5. Interest Prepayments
For interest prepayments to be tax deductible they must relate to fixed interest loans. If the loan is at a variable rate the ATO will disallow the expense and apply penalty charges and interest charges on the disallowed amounts.
6. Principle Place of Residence
Once you move out and the property becomes an investment then land tax will apply. Some investors either purchase a new home or rent while keeping the original home as an investment. The main residence tax exemption allows the capital gains on the family home to be tax free for up to six years after you move out. If you have purchased another home and latter sell one then you have the right to decide which of the two homes you will chose to have the tax exemption applied to. This is where your friendly accountant can assist in doing the numbers to help you decide. If the first home is chosen for the tax benefit then any capital gains on the second home in the cross over period will be taxed if that home is subsequently sold.
7. Costs to Inspect
Costs associated with inspecting your investment properties are tax deductible. This includes travel, stationary, bank fees and maybe part of your rent if you have a designated work area used for that sole purpose. The expenses need to relate to the income you generate and so you would need to apportion expenses if they have a duel purpose such as travel to inspect and to have a vacation. This is an easy target for the ATO to look at so ensure proper documentation and a realistic position on your part.
Director of Chan & Naylor Platinum
Disclaimer: This information has been prepared as a general guideline, and is not intended to be an exhaustive or a complete analysis of the topics in question or issues raised in this article. There are many particular legal, taxation and accounting matters which have not been dealt with in this article and readers are urged to discuss any aspect of the operation of any of these matters discussed herein with their professional advisers. In particular asset protection, estate planning and superannuation are potentially a very litigious areas of law and you will need specific advice before you take any actions if you want your wishes complied with. Before taking any action or implementing any strategy you should seek professional advice from your lawyer, accountant and or financial planner who will take into account your specific circumstances and objectives