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Property Tax Tips For Investors

There are various ways to lessen your tax load, even if you might feel like you're paying too much in property taxes. You can do it in one of two ways: on your tax return. Include eligible expenses, such as mortgage interest and property taxes paid for the year, if you choose to itemize your deductions.

If points were not deducted in the previous two years or more than $100,000 in debt was forgiven or discharged after 2006, you can also write off points paid when refinancing a house loan. You might also think about investing in home renovations that raise your property's assessed value. For example, installing new windows or insulation could be helpful. Please read on for more advice about lowering your property tax burden.

Although there are numerous property taxes in Australia, this article will concentrate on the land tax. The value of your land and its worth are the two main determinants of how much land tax you pay. Therefore, the first thing you must do is find out how much your land would get in today's market. Using that amount and multiplying it by the applicable rate in your state or territory, you can then determine your annual land tax.

Investor Tax Advice

Many Australians make investments in real estate, the banking sector, and other assets both domestically and abroad. You can grow your wealth by effectively managing the tax on your investments.

The ATO has extensive capabilities for data matching and information collection that span a wide range of capital transactions and investment revenue streams.

It is more crucial than ever to disclose investment income, particularly income from abroad, keep accurate records, calculate capital gains or losses on disposal accurately, and adhere to the many requirements and investor-specific concessions.

Consult a tax agent who is registered with CPA Australia so they can advise you on the tax implications of your investments.

Investment Tax Breaks

Exempt dividends and other exempt income are not eligible for deductions; however, expenses paid in earning interest, dividends, or other investment income are.

Investment deduction examples include:

  • account-keeping charges for a bank account used for investing
  • Interest paid on borrowed funds used to purchase shares and other related investments from which you receive income from dividends or taxable interest
  • continuing management fees or retainers, as well as sums paid for advice about adjustments to the investment mix
  • a percentage of additional expenses, such as some travel charges, investing journals, and borrowing costs, provided they were incurred when managing your investments.

If you go to an investing conference, you can only deduct the percentage of your travel costs that are related to certain investment income activities.

Rental Properties

Checking rental deductions and comparing reported revenue to information from real estate brokers, Stayz, Airbnb, and other suppliers are ongoing priorities for the ATO.

A multi-property rental schedule must be submitted with your individual tax returns if you are a landlord.

Verify that rental income is properly distributed among owners, that claims for costs to fix damage and defects at the time of purchase are discounted, and that vacation homes are indeed available for rent.

Rental property owners who are now renting out their homes or have them available for rent can immediately deduct a variety of costs. These expenses could consist of interest on investment loans, real estate taxes, council and water rates, corporate body fees, repairs and upkeep, and compensation for agents.

Renters may be able to deduct the diminishing value of things such hot water heaters, carpets, and stoves. Additionally, they might be able to deduct capital improvements spread out over several years, like remodelling a bathroom, from their taxes.

Be aware that only expenses actually incurred on new items are now eligible for depreciation deductions for residential real estate properties. Landlords cannot depreciate items that were in a property at the time of acquisition for properties bought after May 9, 2017, however, they may do so for items they purchase that are brand-new (not used or refurbished).

Landlords of residential properties are no longer permitted to deduct travel expenses incurred while inspecting, maintaining, or collecting rent on a rental property.

The following tax-related issues have been brought up by COVID-19 for rental property owners or agents to take into account:

  • deductions for rental properties when tenants have temporarily or incompletely stopped paying rent because their income has been impacted by COVID-19
  • rent discounts to allow renters whose income has been negatively impacted by COVID-19 to remain in the property
  • Rent arrears receipts that can be measured or the cost of rent-loss insurance
  • deductions for interest on postponed loan payments for a certain period because of COVID-19
  • cancellation of reservations owing to COVID-19 for a house that is typically rented out for short-term lodging but has also previously been used for the owner's personal use
  • the owner's personal use of rental property (such as a vacation home) during COVID-19 and modifying applicable deductions
  • modifications to short-term rental advertising and other costs during COVID-19 since there was no demand for the property

Even while you can still deduct expenses and depreciation, you might need to alter your deductions if your use of the property has changed.

It is highly recommended for landlords to examine the ATO's material on holiday houses, renting out a home in its whole, and vacation apartments in commercial and residential properties.

No Deductions For Vacant Land

There are currently fewer deductions available for keeping unoccupied land. Even if the land was held prior to the new regulations taking effect, they nevertheless apply to charges incurred on or after July 1, 2019.

Companies, pension plans (other than self-directed pension plans), investment trusts managed by third parties, and partnerships in which all members are the aforementioned tax organizations can all claim expenses related to owning vacant land as a tax deduction.

There are several organizations and situations where it is still possible to deduct for vacant land. For instance, when you utilize the land to run a business, when the organization holding the land is a firm, or when special circumstances apply.

If expenses for retaining land are incurred in running a company, such as farming, or in earning or producing assessable revenue, they continue to be deductible.

The regulations can be complicated, and you must decide whether you own vacant land, whether it complies with all applicable standards, or whether exceptional circumstances apply.

To aid in establishing whether deductions for costs associated with vacant land are restricted, the ATO has created a flowchart.

Property For Residents And Non-Residents

Let's say that when you sell your Australian home property, you are considered a foreign resident for tax purposes. In that instance, unless you pass the life events test, you will not be eligible for the CGT primary home exemption.

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The Profits And Losses Of Cryptocurrencies

Australians, who make up nearly one in five, invest in cryptocurrencies. You should be aware of the tax repercussions if you are now investing in cryptocurrencies or have done so in the past.

Any capital gains you make from selling the cryptocurrency may be subject to tax. There are regulations regarding chain splits, staking incentives, airdrops, and the exchange of one coin for another.

It is therefore more crucial than ever to make sure bitcoin gains and losses are reported accurately because the ATO now compares transaction data from digital exchanges.

If you utilize cryptocurrencies for business purposes, such as managing your start-up or trading big volumes of cryptocurrency, certain laws apply.

Planning for Capital Gains Tax

When selling assets that appreciate in value, you should do so at the right time to avoid a capital gain. It's critical to understand that CGT is not assessed upon settlement of a CGT asset but rather upon entering into a contract for its sale.

This is crucial in cases where the contract's entrance and settlement coincide with the year's conclusion. In some situations, deferring the sale of the CGT asset to the following year, when additional relief might be available, such as a capital loss liquidated on another asset, may be advantageous from the perspective of cash flow.

Make sure an eligible asset is kept for the 12-month holding period necessary to qualify for the CGT deduction. Foreign residents and those who are temporarily residing in Canada are typically not eligible for the CGT discount.

Maintain accurate records for each of your investments and make sure to maintain them for at least five years following the occurrence of a capital gains tax event.

Foreign Investments

Any capital gains or losses you incur on assets located outside of Australia must be reported in your tax return if you are an Australian resident. Income from foreign investments may also need to be reported on your tax return.

Even if your money is being held abroad for you, you can still receive it. You might be eligible for an Australian foreign income tax offset, for instance, if you obtain foreign income or make taxable profits in Australia and you paid foreign tax on that income.

Be aware that the ATO may obtain information about any of your international interests and income because of the ATO's agreements with several foreign revenue authorities to exchange information.

Exchange-Traded Funds

Exchange-traded funds (ETFs) are a growingly popular financial tool, but it can be challenging to figure out how much tax to pay on them. ETFs are subject to the Attribution Managed Investment Trust (AMIT) regulations because they are categorized as trusts rather than regular corporate shares.

The various distributions and capital gain amounts must therefore be reported individually in your tax return.

The relevant information will be included in a member annual statement that many investors will receive, but these reports are voluntary. Check to see if the relevant information is there and follow up with the fund or registry if they aren't in order to make sure that you accurately declare ETF amounts on your tax return.

Financial Products

There is frequently an increase in advertising for investment products that might make tax-effective claims toward the close of the fiscal year.

Check to determine if the ATO has issued a Taxpayer Alert or if a Product Ruling is available.

If an arrangement is carried out in accordance with the terms of the ruling, a product ruling gives the ATO certainty regarding its tax implications. It does not, however, constitute a sanction or assurance of a product's or investment's tax efficacy.

Taxpayer alerts are cautions the ATO provides regarding higher-risk issues or arrangements.

You should form your own opinion regarding a product's commercial and financial feasibility. Think about things such as if the expected returns are reasonable, the management's "track record," the costs compared to other similar products, and how the investment fits into your current portfolio.

Before making a choice if you are thinking about making such an investment, get independent guidance.

Property Tax Advice: Main Residence Exemption from Capital Gains Tax

It is crucial to understand what constitutes your "primary" or "principal" residence because it has a big impact on your future financial condition. When it comes time to sell your property, it is one of the few gains you can earn that are tax-free (presuming you turn a profit). If your primary residence satisfies a few requirements, you are not required to pay taxes on any capital gains.

The majority of the time, determining your primary residence is rather simple. Others, though, find it more difficult because of their circumstances. You might even have a choice as to what property you claim in some circumstances. For these circumstances, it's crucial to comprehend a few fundamental guidelines:

It Must Be A Dwelling

A residence is regarded as a building or a portion of a building that primarily houses residential housing on land. So, while it might be a trailer or a mobile home, it can't be empty land.

You Must Reside In The Property

The tax laws do not define terms, but the Australian Tax Office (ATO) has outlined a number of considerations that are evaluated when deciding whether to accept your claim for the main residence exemption. These consist of:

  • How long you resided in the home (the law does not require this, but it is frequently presumed to be at least three months)
  • the location of the remainder of your immediate family
  • Whether you store your own items at the place
  • the physical address at which your mail is delivered
  • Whether your address on the voter list corresponds to the address of the property.
  • connecting utilities like gas, phone, and power
  • Your intended use of the property

One Main Residence At A Time

Only one residence may be listed as your "primary" residence at any given time. When moving, you are permitted a six-month gap between your primary residences (between the time of acquisition of the new and disposal of the old).

Temporary Absence

You can continue to claim the main residence status on the property for up to 6 years even if you decide to relocate elsewhere and rent out your home at some point. This will only have an effect on CGT; it will not affect your ability to deduct expenses from your current investment property. The drawback is that if you designate your former residence as your primary residence during this period, you will not be permitted to designate the property in which you are currently residing as your primary residence.

Partial Exemption

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Sometimes a property is only eligible for a partial exemption.

When you move, for instance, your new home becomes your primary residence, and your old one is rented out. Your old home will be subject to CGT once it is rented out and is no longer regarded as your primary residence.

However, CGT will not be computed while you were residing there and designating it as your primary residence.

The other instance in which your primary residence qualifies for a partial exemption is when a portion of it is used for a company or another type of income-generating activity (e.g. a beautician servicing customers in a spare bedroom).

In these situations, just the portion of the residence used for these purposes will be subject to CGT during that time, while the remainder of the residence will be exempt. If you have questions about this subject, get expert help as soon as possible.

Prior to Occupation

Let's say you can't live on the property because you are renovating it significantly or building a house on undeveloped land. In that instance, you can still use a "pre-occupation exemption" to claim the principal residency in both cases.

This exemption allows you to use the home as your primary residence for up to 4 years before you actually move in, as long as you do so as soon as is practical and stay for at least 3 months afterwards. Naturally, during this period, you may not claim any other home as your primary residence.

Assets Held in Individual Names

With a few minor exceptions, the property can only be claimed as the primary residence if it is owned in individual names. The CGT break cannot be claimed for property held in a business or trust.

Most people hold their homes in their personal names due to the major tax implications. If asset protection is a concern, it's wise to think about holding the property in only one partner's name so you can still benefit from CGT benefits while providing some asset protection.

I strongly advise you to seek expert counsel from your accountant if you have any queries or worries about taxes since they are not always an easy subject to understand and many laws are open to interpretation.

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