2 June 2011
Tax tips for investors
With the end of financial year fast approaching, it is time to once again review our financial arrangements and consider the steps that we may be able to take to minimise our tax obligations. Some of the common tips for both investors and property owners are listed below:
Tips for investors
- Prepay interest on Investment Loans
Some lenders allow borrowers to prepay interest on investment loans. Where this is the case, the prepayment of interest may enable you to bring forward the interest expense to offset taxable income. Investors should be aware that lenders may charge a fee for the prepayment of interest and should consider this expense in any decision.
- Manage Capital Gains
Investors should seek advice as to whether carried forward capital losses can be used to offset capital gains, or whether the 50% capital gains tax discount may be applied to assets held for more than 12 months.
- Maximising deductible expenses
Investors should ensure that they are maximizing the deductions they are able to claim from expenses incurred in earning assessable investment income. Expenses that you may be able to claim include fees for financial advice, account keeping and management fees and interest payments on investment loans. Income protection insurance may also be tax deductible.
- Superannuation contributions
The Federal Government limits the amount of concessional contributions that you may make to your superannuation in any given year. Additional contributions may be taxed at a rate of 31.5% on top of the normal 15% contribution rate. While maximising the contributions made may have tax benefits, it is important to ensure that the limits are not exceeded.
- Review ownership structure
The ownership structure of your investments may impact the level of tax that you pay on investments. If you have a self managed superannuation fund, there may be opportunities to improve your tax situation. You should however seek advice from qualified tax professionals before proceeding with any restructuring.
- Gearing for investors in super
Borrowing for investments in super may allow you to generate increased returns when invested wisely, despite the restrictions for super borrowings. If you are restricted from making further super contributions, this strategy may allow a super fund to maximize its earnings.
Tips for property owners
- Renovations by previous owner
You may be eligible for a deduction for depreciation on the cost of improvement by a previous owner, provided items are identifiable and itemised in a depreciation schedule.
- Property and Self-Managed Superannuation Funds
It may be beneficial to review your property acquisition strategy to determine whether there are advantages to hold property in a SMSF, taking into account the borrowing restrictions of a SMSF and the impact on your overall buying capacity.
- Immediate deductions for low cost assets
You may receive a deduction for assets costing $300 or less provided that they are:
- used for income producing purposes other than carrying on a business;
- they are not part of a set of assets; or
- one of a number of identical items that have a combined value greater than $300.
- Non-commercial rental arrangements
If you rent a property to family or friends at below market rent you may not claim the total rental property expenses as a deduction.
- Substantiate your claim
Make sure that you have the receipts to prove your deduction and show why the expense was incurred to derive assessable income.
- Prepare a depreciation schedule
You may consider having a depreciation schedule prepared by a qualified quantity surveyor. The costs of having one prepared is tax deductible and it may add a significant tax deduction for depreciation.
- Repairs at time of purchase
Expenses for repairs to property are generally deductible provided that they relate to wear and tear or other damage as a result of earning rental income. The cost of initial repairs at the time of purchase is not deductible.
- Prepay property expenses
You may be able to prepay property expenses up to 12 months in advance. Prepaid expenses are not automatically deductible. A review of eligible prepayments should be carried out.
- Travel and car expenses
If you have travelled to inspect, carry out maintenance or collect rent you may be able to claim the costs of travelling as a tax deduction.
As always, the above tips are a guide only and you should consult an accountant, financial planner or taxation professional before acting on any of the opportunities presented in this newsletter.
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