Australian property can be an excellent long-term investment, and over the last 6 – 12 months, we have seen more and more wanting to become landlords. Property prices in most Australian capital cities are steadily rising, and with record low-interest rates, the Australian property market does not appear to be showing any signs of slowing down.
We are seeing both Australian residents and expats buying up more properties in Australia, which raises the need for financial planning. Not only is it important to get your financing strategy and structure right, but it’s also important to ensure that you’re managing your tax exposure too.
As we approach the end of the 2020/21 Australian financial year, our team of investment-savvy mortgage professionals is sharing our top tips for Australian property investors to reduce their tax liabilities. We certainly don’t believe that Australians should be paying any more tax than they have to be.
- Consider pre-paying interest
If you’re facing a tax liability on your rental income this financial year, you could consider prepaying a portion of the next 12 months’ of interest to bring forward the deduction into this year. It’s important to carry out some forward planning here to ensure that you’re not simply ‘kicking the can down the road’ and you’re planning ahead for future financial years also.
- Get your depreciation report
If your Australian investment property is relatively new, then chances are you will be eligible to claim depreciation on both the building costs and the fixtures and fittings within the property itself. To be eligible for these claims, it’s important that you request a copy of the quantity surveyor’s report, which will outline for each year the amount of depreciation that you’ll be eligible to claim. You’ll often find that the amount you can claim is higher in the earlier years based on the depreciable lives.
- Considering pre-paying your insurance premiums
Do you have landlords’ or other mortgage insurance as a property investor? If so, you could consider pre-paying the insurance premiums for the next financial year to bring forward the tax deduction into this financial year. It’s important that the insurances are related to the production of income, in this case, rental income, to allow you to be eligible for the tax deduction.
- Request a copy of the property manager’s annual report early
At the end of each financial year, your property manager will typically send you an annual summary, which will outline all of the rental income received and the non-bank interest costs of holding that property, such as property management fees, repairs, and maintenance, council rates etc. To allow you to prepare for the end of the financial year, we’d suggest requesting a copy of this report early so that you have an estimate of what your likely tax liability is going to be.
- Bring forward any repairs or upgrades
If you’re considering repairing your investment property, then you may want to consider bringing forward these repairs to allow you to capture the deduction inside this financial year. It’s important to consult with your tax adviser to ensure that you’re clear on the differences between repairs and upgrades to the property. Repairs are generally considered an income expense, which will allow you to claim the deduction immediately, while an upgrade or improvement, may be considered a capital expense and simply added to the cost base for future capital gains tax calculations.
- Check out your mortgage summary statement
The interest that you pay on your loan associated with the investment property is typically going to be tax-deductible. Therefore, it’s important to check out how much interest you’ve already paid on your loan to give you a clear indication of what your tax liability on the rental income may be. This can also be an excellent time to remind yourself of the interest rate that you’re paying and consider refinancing or locking in a lower rate.
- Consider making a superannuation contribution
If you have a positively geared property in Australia, particularly as an expat, you may want to consider making a concessional, or tax-deductible, superannuation contribution to offset the tax liability on your rental income. It’s important to seek professional advice here and ensure that you are in fact eligible to make a superannuation contribution as well as how much you should look to contribute.
We hope you find these tips helpful to allow you to plan ahead and avoid paying any more tax than you have to. If you have any questions about your options, or simply want to enquire as to whether you can secure a better interest rate on your loan, feel free to reach out to our team.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business, and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
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LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.