The property tax talk it’s wise to have now if you own real estate

Real estate investors and owner-occupiers can hit unexpected tax hurdles if they don’t consider their strategies long before June 30.

It’s almost three quarter time in a financial year like no other.

We’ve had a recession, global pandemic, tax cuts, record low interest rates and real estate markets that shrugged off fears of a COVID collapse and are now growing strongly.

And despite JobKeeper wage subsidies ending on Sunday, property specialists don’t expect price pressure on housing because the worst-affected workers are generally not homeowners or investors.

But there is one thing property owners should be thinking about right now: tax.

Whether you’re an owner occupier or investor, there may be big opportunities and potentially big pitfalls that affect your finances. Talking with partners, advisers and accountants about property and tax impacts happen quickly because strategies often require weeks or months of planning.

OWNER OCCUPIERS

Aussies’ homes are still tax free when it comes to capital gains, and any government that tries to change that rule will probably find itself booted out the first chance voters get.

But there are still tax issues to consider before June 30.

Hundreds of thousands of homes are shared or rented out through Airbnb and similar accommodation platforms, and where this involves your home there can be tax implications.

The Australian Taxation Office gets data directly from sharing economy platforms, so you can’t income. And when you eventually sell the home there may be capital gains tax payable, so get some professional advice.

Land tax is usually paid by investors but can be an issue for owner occupiers who are switching homes. Picture: NCA NewsWire / Gaye Gerard

People who run their own business from home and claim mortgage interest and similar costs are also likely to be up for capital gains tax when they sell. However, an employee working from home and claiming running expenses such as electricity won’t pay CGT.

Land tax is usually paid by investors but can be an issue for owner occupiers who are switching homes and find themselves caught at June 30 holding two properties. Land tax is only exempt on one property, so get your timing right.

INVESTORS

Real estate investors can use the March-to-June period to get sorted before the end of the financial year.

Repairs and maintenance are tax deductible but don’t think you can wait until June to get the job done, particularly with builders and tradies in strong demand.

Investors can also look at prepaying expenses such as landlord insurance and interest before the end of the financial year to bring forward deductions, and should get themselves a depreciation report.

Depreciation is the greatest gift to property investors because it delivers thousands of dollars of deductions without costing them cash.

Depreciation is the greatest gift to property investors. Picture: Alex Coppel

While government rule changes in 2017 stopped depreciation deductions for fixtures and fittings that were not bought new, they did not affect capital works deductions for construction costs that typically represent about 85 per cent of depreciation-related tax claims. And there were no rule changes for new property purchases.

Investors eyeing a sale soon should consider the timing issues around capital gains tax. If their income is likely to be lower next financial year, it’s worth considering holding off on signing a sale contract until after June 30.

@keanemoney