How to make your tax debt work better for you
by The Advantage
Tax season is fast approaching. If you’re worried about your 2020 tax debt, now’s the time to start putting in place a new strategy for your 2021 return.
This article explores the tax advantages and deductions that can come with owning a property, whether you’re an owner-occupier or an investor.
Make the most of owner-occupier tax benefits
When it comes to claiming tax deductions and benefits, the ownership structure of your property matters. For example, an owner-occupier will not have access to the same tax breaks as a property investor. However, owner-occupiers can still take advantage of a number of tax benefits.
Home office deductions
If you’re one of the millions of Australians who work from home, then there are a number of tax benefits available. For example, if you work from a dedicated home office, you could claim a certain percentage of your home running costs, including:
- Mortgage payments
- Home insurance
- Depreciation of office equipment
- Maintenance for your office
- Telecommunication costs (e.g. phone and Internet connectivity)
- Utility costs including gas and electricity.
According to the Australian Tax Office (ATO), there are a large number of factors you’ll need to be aware of when claiming your tax as an owner-occupier. For example, if your home is also your principal place of business, you’ll need to refer to additional rules for running a business from home. You’ll also need to take into account your office set-up and percentage of time you work at home versus in an office.
In the time of COVID-19, even more industries have been instructed to work from home. In fact, the Centre for Future Work estimates that around 30 per cent of the Australian workforce could feasibly work from home: about 4 million workers in total. If you’ve been affected by the office shut-down, it’s worth investing in professional tax help to get the most out of your 2019/20 return.
Rental deductions
Have you offered a room for rent in your owned home? If so, you could be eligible for some handy benefits.
You need to declare any income you’ve accumulated from a rented room at tax time. However, as a live-in landlord, you can use the ‘apportion method’ to claim your tax deductions. This method allows you to allocate a certain percentage of expenses as private and personal. Say you’re sharing your home space with one other person; you may be able to claim 50 per cent of the cohabited living spaces.
There’s a number of other factors to take into account when calculating rent deductions. Best speak to a tax expert to make sure you get it right first time.
Understand property investors tax benefits
There are numerous opportunities for property investors to take advantage of tax deductions.
Rental expense deductions
Property investors can claim to offset an array of expenses associated with their rental property. Some of these include:
- Rental advertising costs
- Body corporate fees and charges
- Rates including council and water
- Land taxes
- Insurance
- Pest control
- General repairs and maintenance
- Property agent fees and commissions.
Depreciation costs
General wear and tear are an expected part of owning any asset. An investment property is no different. If you’d invested in a property, depreciation could be one of the best things to lower your overall tax debt.
For example, if you’d invested in a building that was constructed after 1985 (and you’re using it for investment purposes) you can claim depreciation on your tax return. This mean you could potentially save thousands of dollars over the time you own the property, all without spending anything on it.
Loan interest
Interest may seem like a small expense, but it can quickly add up over time. If you take out a loan to purchase a rental property, you can claim a deduction for the interest charged on the loan or a portion of the interest. According to the ATO, you can claim the interest charged on the loan you used to:
- Purchase a rental property
- Purchase a depreciating asset (e.g. an air conditioner) for the rental property
- Make repairs
- Finance renovations on a currently rented out property, or one which you intend to rent out.
Have a clear tax deduction strategy
While many people are aware of the numerous tax benefits available for property owners, most don’t know precisely what they are. Or how to take advantage of them.
If you’re new to investment or home ownership, or you just want to invest in a tax debt strategy that works, now’s the time to speak to an expert. The team at Advantage Consulting can provide you with professional advice for all your tax debt needs. Call us today.
Disclaimer: This is general advice and has been prepared without taking into account your particular situation or needs. You should consider whether it is appropriate for you before acting on it.