It is actually hard to believe the year is literally flying by, we’ve blinked and suddenly the end of financial year is upon us. So that means it is time to chase that tax return. As an investor though, do you actually know what you can and can’t claim for. Well, we are here to share our knowledge and ensure you a claiming everything you can and achieving maximum return on your investment.
First, What you should know about Capital Gains Tax (CGT)
We’ve all heard this term, but it is important to understand what is capital gain? You achieve a Capital Gain when the proceeds from the sale of a property are more than the property’s cost base, and a Capital Loss is when the sale proceeds are less than the cost base.
With this in mind, a key strategy for minimising CGT is to ensure that you identify all legitimate expenses that fall within the cost base of a property. The cost base is made up of the purchase price, along with many of the costs associated with the purchase, holding and sale of the investment property. This includes stamp duty, broker fees, loan fees, legal expenses as well as capital improvement outlays. CGT can be reduced by 50 per cent if the taxpayer has owned the property for more than 12 months or other potential concessions are applicable if the property was previously your main residence.
WHAT CAN YOU CLAIM ON YOUR INVESTMENT PROPERTY
· Interest – Be sure to only claim funds that are relevant to your investment properties, not the property you live in.
· Insurance – You can claim landlord, building, contents and public liability insurance that you have taken out on your investment property.
· Property Management Fees – You can claim the fees that you pay to your property management agency. Including advertising for tenants.
· Council and Water Rates
· Depreciation – You can claim depreciation based on a depreciation report or from individual assets purchased for the property. Like whitegoods and air conditioners.
· Capital Works – You can claim anything that increases the value of your investment.
· Ongoing Expenses – Keep track of all maintenance, repairs or improvements made to your property. Gardening and lawn mowing maintenance are also covered.
· Reasonable travel expenses to inspect your property
· Apartment and unit buyers can potentially claim against common areas
In order to make taxation claims, you need to keep official documentation including receipts and bank statements. For the best advice contact your accountant or financial adviser direct.
WHAT IS DEPRECIATION?
The depreciation schedule is a record of the property’s assets, outlining how much you can claim in depreciation each year. A capital works schedule outlines building and construction costs, the cost of altering a building, or improvements to the surrounding property and the amount you can claim each year. A quantity surveyor can put together a depreciation schedule, using a profession can save you significant money in the long run as they are experienced at accurately valuing assets.
EXPENSES YOU CANNOT CLAIM ON YOUR INVESTMENT
· Those relating to your personal use of the rental property
· Utility bills paid by the tenant
· Borrowing costs where you have borrowed against the equity in the investment property for private use
· Costs relating to the purchase or sale of the investment property
Remember many of the costs relating to the purchase or sale of the investment property can be included in the cost base. For this reason, it is important you keep detailed records of your spending from the beginning of your investment journey. Identifying all eligible costs may both reduce your capital gain or increase any capital loss which can be carried forward to apply to future capital gains.
TIPS TO MAKING THE MOST OUT OF YOUR RETURN
1. Choose the right accountant
2. Engage a qualified Quantity Surveyor for a depreciation schedule – Fees are claimable
3. Keep records of everything relating to your investment
4. Understand capital gains and other tax terms
5. If you are considering selling make sure you have owned the property for more than 12 months
6. Conduct an end of financial review and ensure your investment strategy is still working for you financially
This information is general in nature and does not constitute financial advice, please seek professional advice from your professional adviser or accountant.