Well it's that time of year again. June 30 has now passed and it is time for all tax payers to get their tax returns in order. I like to use this time of year to talk about the tax benefits of owning property for investors; it always surprises me how many people, even current property investors, don't understand the impact of property ownership on their tax bills.
One of the main benefits for property investors to consider is the handling of expenses; investors can claim some property related expenses immediately (i.e. at the end of the financial year) and others over periods of time (i.e. depreciate them), as set out in guidelines from the Australian Tax Office. These expenses can be offset against your income.
The types of expenses that can be claimed include insurance, land tax, council rates, repairs and maintenance, water charges, body corporate fees and borrowing expenses.
It is common for some investors to make mistakes when it comes to depreciation, especially in terms of timing the claiming of expenses. It is important for these to be handled correctly, otherwise the ATO may form the view that the investor is trying to cheat the system.
Companies such BMT & ASSOC are specialists in the field of property tax depreciation, and can help to ensure that you obtain the maximum possible deduction from your investment property while still being ATO compliant.
The concept of negative gearing is also important when it comes to tax time. Negative gearing essentially means that the annual rental income from your investment property is not sufficient to cover your investment costs (i.e. interest on the loan in addition to any of the property's deductible expenses).
If you are negatively geared you could have the ability to reduce level of income you must pay tax on (by deducting the costs of owning your property from your annual income) and thus the amount of tax paid.
Determining the deductions available to you and maximizing the tax benefits of your investment property can be quite a complex task to get right, but when done correctly could have a significant impact on your tax bill.
If you have already invested in property, be sure to take the time to prepare your 2009/10 tax return, maximizing your tax deductibility.
If you are not a property investor, but are in a position to become one, you might like to consider the associated benefits. Should you make a move into the property market over the coming year, such tax advantages could apply to you also.