Property investment is fast becoming a popular venture in Australia and while it may have slowed down during the past year due to the Coronavirus pandemic, it is bouncing back after several areas are transitioning back into a level of normalcy.
While several investors are employing the services of property management services for their investment properties, there are three important things the Australian Taxation Office wants Australians to be aware of to help investors get the most out of their assets.
Keep track of income and expenses
While all income earned from property investments need to be declared in the tax return, property investors need to keep track of all rental and all other associated payments, as well as insurance payouts.
Aside from cash, goods and services earned can also be considered as income with a monetary value tied to these based on current market values.
The same goes for any expense related to the investment’s operations.
The primary reason for this is that it will give property investors a clear picture of their cash flows and which items they can claim as deductions.
Rental expenses are generally divided into three categories which are expenses that can be claimed for immediate deduction in the income year it was incurred, expenses entitled for claim deductions over several income years, and non-deductible expenses.
When you keep track of your rental income and expenses, it would be easy to prepare for claims based on these categories with ease.
Maintain all records for safekeeping
This is mainly because it helps make tax returns and deductions easy and more manageable. Records serve as proof of transactions and supporting documents, making it a vital requirement for any or all tax-related matters or concerns.
This is also a way for investors to keep good track of their finances and see how their investments are faring.
Do not hesitate to ask for receipts for any or all services availed such as repairs or maintenance services.
Take good note of CGT
This is a good way to foresee and plan for your property investment, especially for those looking to start their venture.
Capital gains tax is what owners pay to the government on capital gains or profit made after the sale of a property asset. This is part of the income tax and paid upon the sale of the property with certain exemptions.
When using property to gain rental income or a bit of side income for the short term, capital gains are factored in and will apply as soon as that property is sold.
Here are the variables for CGT;
- Cost base, which is the purchase price plus other costs associated with buying, holding, and selling the asset.
- Capital gain, which is the difference between the profit made and the cost base of the property.
- A capital loss is factored in when an asset is sold for a price lower than the cost base.
- Net capital gain or loss, which represents the amount that is factored into the income tax return
Some factors allow for discounts around CGT to help alleviate financial responsibility, so investors need to get in touch with their accountants or property professionals to help them make the best decisions for their investment portfolio and finances.