Property Investment Tips: When the tax man comes calling

By the resi financial blog team, 18 June 2014

Preparing for tax in Australia

Whilst completing your tax return may not be the most exciting of tasks, it is essential to understand your obligations and entitlements.

Whether you've got a fixed- or variable-rate mortgage on your investment property, owning a rental home or apartment requires more in the way of organisation than making repayments and completing the odd inspection. 

When it comes to your tax return, there are a few nuggets of valuable information to keep in mind. There are plenty of ways you can reduce your taxable income, but you need to keep it within the bounds of the law.

The devil in the details

If you fail to plan, you're planning to fail. It's really that simple.  

However, if you have complete and thorough records of your expenses, you're much less likely to face difficulties when lodging your tax return each year. Don't let a lack of details catch you out!

The Australian Taxation Office (ATO) reminds property investors to keep records of the initial costs associated with buying a dwelling, along with the date of purchase.

This is important because if you sell the property in the future, you'll need to establish whether you made a capital gain or loss and work out your tax obligations accordingly.

What gear are you driving in?

Your obligations regarding pay as you go (PAYG) instalments will depend on whether your property is positively or negatively geared.

Whether you have locked in one of the best 3-year fixed mortgage rates or are riding the waves of a floating rate, if you've borrowed money to invest, your investment property is geared.

If a property's rental income outweighs its associated expenses, your property is positively geared. However, if the expenses are tipping the balance and outweigh a property's income, then the property is negatively geared.

The ATO explains that if you make $2,000 or greater of investment or business income and your  income tax assessment is over $500, you'll probably have to make PAYG instalments throughout the year. However, you can reduce your PAYG withholding if your property is negatively geared.

Categories: Property Investment