The property talk you should have now

As the final quarter in an unprecedented financial year approaches, tax should be on homeowners’ minds

It is almost three-quarter time in a financial year like no other. We have had a recession, a global pandemic, tax cuts, record-low interest rates and real estate markets that shrugged off fears of a COVID-19 collapse and are growing strongly.

And despite JobKeeper wage subsidies ending tomorrow, March 28, property specialists do not 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 now: tax.

Whether you are 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 should happen quickly, because strategies often require weeks or months of planning.

There is one thing property owners should be thinking about now: tax. Whether you are an owner occupier or investor, there may be big opportunities, and potentially big pitfalls, that affect your finances.

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 by voters at their first opportunity.

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 receives data directly from sharing economy platforms, so you cannot hide income. And when you eventually sell, there may be capital gains tax payable, so seek professional advice.

People who run their 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 will not pay this tax.

Land tax is usually paid by investors, but it 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 make sure your timing is right.

INVESTORS

Real estate investors can use the

March-to-June period to sort things before the end of the financial year.

Repairs and maintenance are tax deductible. But do not think you can wait until June to have 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 receive a depreciation report.

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

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

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 is worth considering holding off on signing a sale contract until after June 30.