Property and tax: don’t let ATO rules cloud your financial moves
Tax on property can deliver painful problems, but also big gains, so acting well before the financial year ends is often crucial.
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How fast is this financial year flying? Like a rocket, it feels.
In under three months it will be tax time again, and that means there are things that property buyers, sellers owners should be considering right now.
Tax’s complexity and constantly changing rules mean that leaving real estate and money moves to the last minute can potentially cost people thousands of dollars.
The high value of property compared with most other assets means the money involved is significant, so here’s what should be on your real estate radar in the final three months of 2023-24.
SELLERS
Peoples’ principal place of residence remains tax-free when sold, but second homes, holiday homes and investment properties attract capital gains tax, where at least half the gain is added to their income for a financial year.
CGT should be factored into selling decisions near June 30, as a sale may be able to be deferred to delay the tax bill another 12 months – especially with lower tax rates applying from July 1 this year through the stage three tax cuts.
Remember that CGT applies from the date a contract is signed, not the settlement date. This timing trap has caught out countless people in the past.
BUYERS
Buying a home attracts tax in the form of stamp duties, so it’s wise to understand how many tens of thousands of dollars you’ll have to pay for the home you want.
Understand your state’s stamp duty rules around first homebuyer exemptions and other discounts, and the impact it has on your property buying power.
Buyers can get unnecessarily slugged by land tax in states where property holdings are assessed at June 30. In NSW and Victoria it’s on December 31, but for the other states, people who buy a home late in the financial year but don’t sell their old one by July 1 could be taxed heavily for holding two properties at once.
INVESTORS
The biggest tax moves are available to Australia’s 2.2 million residential real estate investors, and can potentially deliver tax refunds totalling thousands of extra dollars.
Many of the tax strategies available to investors need to be planned and performed in the weeks and months ahead of June 30. These include:
• Organising property repairs and maintenance to be completed before the end of the financial year, so a tax deduction can be claimed from July 1.
• Prepaying landlord insurance policies before June 30, bringing the entire annual payment into the current financial year.
• Prepaying interest on investment loans, but first consider the impact of potential Reserve Bank of Australia interest rate cuts later this year.
• Getting a depreciation schedule prepared by a quantity surveyor. These reports by tax deprecation specialists are tax-deductible themselves and can unlock thousands of dollars of extra deductions, particularly for new investment properties.
Investors should also keep a close eye on next month’s federal budget, and any announcements ahead of it, because the current Labor Government has form in springing unpleasant tax changes on people it believes can afford them.
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Originally published as Property and tax: don’t let ATO rules cloud your financial moves
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