Have you ever under-declared your income or over-claimed your expenses while doing your property taxes?
If you have, you need to talk to a tax agent immediately and get a tax health-check on any property dealings, according to H&R Block director of tax communications Mark Chapman.
Speaking to Mortgage Business, Chapman warned property investors about a new program that the Australian Tax Office (ATO) has launched to make sure that property owners have met their tax obligations.
The ATO is planning to dig up the details of all taxpayer’s transactions from 1985, which will include the names of landlords, lease periods, amounts of rental bonds, rents payable, dates of property transfers, and valuation details.
More than 30 million records are expected to be cross-checked with information that the ATO already holds. In this way they can build a pretty accurate picture of property-related transactions over the past 30 years.
If there are discrepancies, Chapman said the ATO has promised to penalise these property owners.
There may be sizeable penalties for not meeting your property tax obligations, and this can be avoided if you correct your mistakes by making a voluntary disclosure before your property and you are placed under heavy scrutiny.
What are the expenses that I can claim?
You can still claim deductions despite of this new program launched by the ATO, such as:
- Depreciation for a property: This includes depreciation for the building as well as the furniture inside the building.
- Negative gearing: You can claim negative gearing benefits if the interest you pay on the mortgage plus the running costs such as management fees, renovation costs or annual inspection fees are more than the income you make from your investment property.
It is important to note that you have to pay capital gains tax if you make a profit when you sell your property.
The profit is calculated by deducting your purchase cost and other incidental costs from the selling price of the property. You have to add back any depreciation you claimed though.
Are there any advantages to investing in a property?
Thousands of Australians invest in the property market every year to reap the benefits of property investing, such as:
- Secure investment: The Australian property market is steadily growing and past data shows that it’s a steady way of getting good returns on your investment.
- Asset growth: If your rental income is higher than the mortgage repayment, then the property may be paying itself off. This means that you can fully own a property without having to save extra money from your salary to pay off the mortgage.
- Tax reductions: Any expenses that you incur on the property, including maintenance costs, insurance payments, or management fees can be used to reduce your tax against your other incomes.
- Equity: You can use the existing equity in your investment property to secure other loans.
Disclaimer: The above information is general information and shouldn’t be taken as financial advice. It is recommended that you speak to a professional financial adviser before you decide to buy a property in Australia.
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