Last week my post was on last minute tips to reduce your tax for small businesses. In this article I’ll cater to the other majority of our clients, property investors and more-so how to reduce your property tax in 2016. The end of financial year is just round the corner so here I have listed the top tips for smart property investors to reduce your tax obligations:
Timing The Sale Of A Rental Property
The ability to gain another 12 months to pay your capital gains tax bill on the sale of a rental property is actually quite simple. For capital gains tax purposes, the event takes place using the date of the contract of sale.
So if the contract of sale is dated 27 June 2016, you capital gains tax event is this financial and you’ll need to record this on your 2015-16 tax return.
Push this out until post 1 July 2016 and it’s now in the next financial year and you won’t have to record until the end of the 2016-17 financial year and possibly not have to pay until 16 May 2018.
As a side note, if you have incurred a capital gain this year or cannot push the contract out until after 1 July, ask your accountant whether you could make a deductible superannuation contribution to offset some of the capital gain!
This should be a given. You can claim a tax deduction for the decline in value of your rental property. The best way to organise this is through an expert Quantity Surveyor such as BMT Tax Depreciation. It will cost around $700 – $800 (which is also tax deductible) but the future tax savings from using this schedule will far out weight it’s cost.
Deductions for Renovators
Similar to a depreciation schedule, if you are renovating and scrapping or disposing of assets such as carpets, air conditioners, hot water service, to name a few, they may still have some residual value you could write off. Again BMT are the team to help you out and you’d be mad to scrap items and not at least claim a possible tax deduction if available.
If you run your investments through a Discretionary Trust (commonly known as a Family Trust) then you should have your distribution resolutions already in place if you have a profit to distribute come 30 June. If not, call your accountant quick sticks.
Also, ask your accountant if you have a Family Trust Election in place and whether this needs to be reviewed.
Defer Income and Bring Forward Expenses
This essentially means you are pushing any rent payment forward till after 1 July and also paying any expected expenses before 30 June. These two don’t need to work together, so you could simply pay a few expenses (that you have to pay anyway) but instead of just paying whenever you get around to it, make sure you pay before 30 June to claim as a deduction in the 2015-16 financial year.
Review Your Property Portfolio
Investment decisions should be aligned with your wealth creation goals. So if you want to have a portfolio of $X,XXX,XXX by the age of 65 then you should at least annually check in to see how you are tracking. This sometimes leads to the decisions of cutting your losses and moving away from an underperforming property that doesn’t have the future capital growth you desire and looking at investing elsewhere or in another property. Chat with your trust advisor if you need some guidance.
So go and implement and see what you can execute now to save your self a little (or a lot) of tax this financial year and we’ll be seeing and hearing from you in the coming weeks when we do tax season all again!