*When I started to jot down some brief tax information on buying property my first thoughts were “buyer beware” and the need for buyers to be logical and prepared. Being educated about property investing is one element needed to make better and informed decisions. Being an “aware buyer” helps in that the buyer will ask more and better questions – therefore improving the quality of decisions taken.
Before you Buy – Planning considerations
In making the decision to acquire property as an investment vehicle to create wealth, decisions have to be made about the ownership of the property. In what structure should you hold the property? The following structures are available:
Individual
Partnership – jointly or tenants in common
Company – not good for assets which appreciate in value
Trusts – Unit, Discretionary, Hybrid, Testamentary, Super Fund
Before settling on a structure consideration should be given to the following:
Asset Protection – generally from third parties. This is important for people running businesses. Employees are generally exposed to less risk. Where property is generally held for a long time
Income tax planning flexibility – how to have income derived by the member of the family with low marginal income tax rate and how to have a negative gearing loss derived by the family member with the highest marginal tax rate
Retirement planning – flexibility in owning assets and/or generating income to maintain lifestyle while accessing government benefits.
Succession planning – where you want control and management to pass onto younger family members without having to sell and incur CGT, stamp duties and other transfer expenses.
After you buy – Management Considerations
In dealing with all institutions – particularly the ATO, documentation is critical. Because property is owned over a long time it is important you maintain original documents in a safe and accessible place.
These will be needed to calculate CGT on the sale of the property. A summary of the cost base and borrowing expenses are recommended at the time of preparing the tax return. Documents include: Solicitors settlement letter, Solicitors legal fees, Pest and Property Inspection report, Lender’s letter of approval and terms of the loan, Conveyance Stamp Duty receipt – if details not on solicitors letter.
After you take possession of an investment property, management is an issue. Tax matters pursued by ATO include:
interest – deductible or not
interest – who is it deductible to
repairs (deductible) or improvement (capital write-off)
depreciation of plant or capital write-off of building cost
capital gains – was it declared, was it properly calculated
private usage – holiday homes
If you have some questions or would like some advice on Financing Property contact Michelle Schaafsma, Smartline Personal Mortgage Adviser, Mortgage Broker. e: michelles@smartline.com.au
* This article was written by Shukri Barbara of Property Tax Specialists
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