Sick of losing big chunks of your profits from your investment property to taxes? Really, frustrating, considering how hard you strive toward gaining financial freedom with your real estate. What if you can turn the tables around and use taxes in your favour?
Well, most investors miss huge strategies that will greatly benefit them tax-wise while maximizing profitability. We will take you through some simple yet powerful ways to reduce your tax burden as well as unlock the full potential of your investment property in this guide.
The Importance of Taxation Revenue in Australia
Understanding the broader tax framework in Australia can give you an appreciation of how your tax strategies relate to greater planning. In the year 2018-19, total taxation revenue collected in Australia was up by $31,234 million, or 5.9%. Taxes on income, profits, and capital gains went up by $26,182 million or 8.4% while taxes on property increased by $2,383 million or 7.9%.
This increase in taxation revenue proves that significant financial planning is needed for any property investor, including you since the government strongly relies on these taxes as an avenue to boost the general investment climate.
Maximize Your Investment Property Tax Benefits
Real estate investing has more than just rental income or property appreciation to offer; it provides significant tax savings opportunities. Here’s how you can maximize your tax benefits of investment property:
1. Key Tax Deductions to Explore
For the biggest reduction in your property tax, you have to take maximum advantage of all the available deductions. Here are some of the essential ones:
- Interest on Loans: The interest that you took for loans to buy or to maintain your investment property can be deducted. This alone can make a huge difference in saving taxes on investment property.
- Depreciation of Assets: You can claim depreciation of your property’s structure, fittings, and fixtures. Which would include examples such as:
- Carpet
- Air conditioning units
- Hot water systems
- Repairs and Maintenance: Any repairs done regularly on your property are tax-deductible. However, make sure to distinguish between repairs and improvements, as improvements are capitalized over time rather than deducted right away.
- Management Fees: If you appoint a management agency, their charges also qualify for tax relief.
- Insurance Premiums: Insurance on your investment property is also deductible to further reduce your taxable income.
2. Capital Gains Tax and How to Minimize It
Capital Gains Tax is charged whenever you sell an investment property with a gain. There are the following ways to reduce its burden:
- Discount for Holding Period: In case you have held it for longer than 12 months, you qualify for the discount of the capital gains tax, which will be 50% as well.
- Primary Residence Exemption: In case you have occupied the property for some time, you are entitled to a partial exemption from CGT.
- Timing of Sale: You should sell the property when you have little or no income during that year, reducing your overall taxable income and consequently diminishing your CGT.
Planning the timing of your sale and keeping track of available exemptions will let you cut your liabilities strategically.
3. Negative Gearing
Do you know what negative gearing is? It is a clever way many investors use their brains to save on taxes. This is how it works:
- When Your Cost is More Than Your Income: When expenses for your investment property investment, say loan interest and maintenance cost exceed the amount of rental income, you incur a loss.
- Loss Offset: These losses can be applied to other sources of income to offset the income, or tax it at lower tax rates. This is one of the most significant tax advantages made when investing to build a property portfolio.
Negative gearing is an extremely effective way of paying for ownership in property and maximizing your tax benefits of investment property.
4. Timing Your Income and Expenses
Timing can be everything in terms of taxes. Here are a few strategies to consider:
- Deferring Income: Where possible, defer taking any rental income until the next fiscal year to reduce taxable income for the current year.
- Strategic Costs: Pay deductible costs when your income is high so that you minimize your tax liability.
Timing your income and your costs just right will help you figure out how much you can owe in taxes each year.
5. Detailed Record Keeping- Maximizing Tax Savings
For you to walk away with maximum tax savings from your benefits, keeping accurate records is important. Track the following:
- Receipts and Invoices: Retain all receipts of expenditures for the acquisition of the property, repair, management fees, insurance premiums, etc.
- Loan Documents: You should keep clear documents related to any loans you have taken out against your investment property.
- Depreciation Reports: Use a quantity surveyor professional to prepare a depreciation report for your assets so you never miss a deduction.
Organization and detail in record keeping make tax time easy, besides allowing you to benefit from all you deserve with your investment property taxes.
6. Engage the Best Investment Property Agency in Australia
It makes more sense to let the pros do the heavy work. Consult an investment property agency in Australia who can help you:
- Get Professional Advice: An agency can provide you with insight about tax-saving techniques that you never knew you didn’t know.
- Manage the complexities: From the management of income rentals to handling tax law, an agency will ensure you stay compliant while taking full advantage of deductions and tax savings on an investment property.
A real estate investment agency is your best friend for optimizing your taxes and ensuring that your investment doesn’t face deficits.
Maximize Your Real Estate Investment with Citadel Buyer Agency
We at Citadel understand that property investment is one of the most effective drivers of wealth creation. With our wide knowledge of real estate tax and commitment to your success, we are the perfect partners on this journey.
We offer deep advice and support at every point right from:
- Full analysis of all costs you incur in buying and maintaining your property.
- Easy-to-read, results-driven simple depreciation schedules.
- The choice of thousands of accountants and advisors across Australia by ATO-approved schedules.
Contact Citadel now to see how we can help maximize the deductions on your investment properties and allow your investments to work as hard as you do!
Final Note
Maximizing your tax benefits is the key to ensuring that your property investment will eventually generate the returns you wish to make. Many techniques can be applied, from loan interest to negative gearing and capital gains management. Don’t miss an opportunity for profit by overlooking these very important tax benefits. Consult the best investment property agency in Australia to make the perfect decision.