1. 75,000 new homes are expected to be built across Sydney in the next financial year, which is double the long-term average of 40,000, and Councils are under even more pressure to rezone more land for housing as part of the state government’s determination to increase the supply of new homes in the city.

2. Not only that, the recent budget committed a further $118 million over the next four years to deliver new infrastructure, housing and employment initiatives, review land use and infrastructure strategies for priority growth areas.

3. Another $19 million will be used to support the construction of 30,000 new homes in priority precincts, and almost $70 million will be allocated to fast-tracking the assessment of major projects, and helping merged local councils run planning systems.

4. The Planning Minister, Anthony Roberts, said the government’s “number one priority” was to get more houses built in order to make new homes more affordable. “We are working on many fronts to make owning a home a reality for more people, by streamlining and simplifying the planning system so housing approvals can be fast-tracked and are continuing to release and rezone more land.”

5. Combined with the reduction of stamp duty for first home buyers purchasing properties between $650,000 and $800,000, this is all good news.

Find out more from the original source: https://www.nsw.gov.au/improving-nsw/projects-and-initiatives/first-home-buyers/

What do I need to know?

• All deductions relating to the cost of travel to investment property will cease as at 1 July 2017.
• Investors who purchase plant and equipment (such as dishwashers and ceiling fans) after 9 May 2017 will be able to claim depreciation deductions over the life of the asset. However, owners of a property will not be eligible for deductions on plant and equipment purchased by previous property owner. This will essentially reduce capital gains made on future disposal of the property.
• Foreign owners will be charged a fee if their property is not occupied of available on the rental market for at least 6 months of the year. The fee is estimated to be at least $5,000 per annum.
• Foreign and temporary residents will not be eligible from the main residence exemption which excludes private homes from capital gains tax.
• From 1 July 2017 the CGT withholding rate will increase by 2.5% to 12.5% and the withholding threshold for foreign tax residents will reduce from $2 million to $750,000.
• Foreign ownership in new developments will receive a 50% cap meaning that any new development will need to ensure that less than 50% of the purchasers are foreign residents.

If you’d like to understand more about how the new budget might affect your property portfolio or aspirations, please contact CPS Property today.

Deductions apply for any property you own that is available for rent, hence excluding your home or personal holiday accommodation. Listing with agents can help prove your properties are available for rent as the proper documentation will be in place.

Below is a list of items which you can claim as deductions against rental income this year which are either deductible immediately or after a few years of owning the property. Further below is a list of items that are not deductible, and usually questioned by the ATO. This will assist you in compiling your information and make it easier to prepare your income tax return. You can also use this information to improve your decisions in relation to managing your investment properties.

DEDUCTIBLE – Immediately

Expenses relating to the maintenance and management of your investment property, including interest on loans, can generally be claimed immediately, against your current financial year’s income.

Property Management & Maintenance Expenses

• Advertising for tenants – directly by you or where the agent charged you
• Body corporate fees or Strata Title fees and charges (Special levies for capital works on a building can only be depreciated at 2.5%)
• Cleaning
• Gardening/Lawn Mowing
• Pest control
• Security patrol fees

Rates & Taxes

• Water rates, charges & usage
• Council rates
• Land tax – first time owners have to lodge an initial land tax return with the Office of State Revenue in each state. They will not chase you up and they will charge additional interest for late lodgement, so you must initiate this

Property Agent

• Fees/commissions – including GST
• Postage & petties
• Statement fees
• Bank charges/fees
• Lease document expenses
• Letting fees

Administration Expenses

• Stationery used to maintain your rental records
• Postage on documents relating to property management
• Telephone calls relating to property management – ATO prefers to see a diary
• Legal expenses relating to debt collection or tenant problems
• Electricity & gas – where not covered by tenant

Insurance

• Landlords
• Building
• Contents
• Public liability

On Acquisition – from the solicitor’s settlement letter

• Balance of council rates
• Balance of water rates
• Balance of body corporate fees

Repairs & Maintenance

• Plumbing
• Electrical
• Handyman

Repairs and maintenance relate to wear and tear or damage as a result of renting out the property. The idea is that an expense is considered a repair when the functionality is being restored.

For example – fixing broken glass on a window is considered a repair, while replacing the whole window frame is an improvement. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. These falls under building costs, and are usually deductible at 2.5% per year for up to 40 years.

Repairs made immediately after purchase of the investment property or maintenance to make the property suitable for rental are considered to be of a capital nature – part of the cost of the property and can be depreciated. They are not deductible as the ATO considers the lower price of the property reflects its state of disrepair.

The ATO is particularly vigilant to catch people who are claiming expenses described as repairs when they are considered to be improvements.

Interest & loan account fees on loans to finance investment properties

• For the interest to be deductible the loan must have been applied to acquire an income producing asset e.g. rental property
• Where loans used for both investment property and private assets the interest has to be apportioned based on how much of the principal was used for which purpose. This usually happens when people are using a Line of Credit facility.

Travel expenses to

• Inspect property
• Maintain property
• Collect rents

A full deduction can only be claimed if the sole purpose of the trip relates to the property. Where the inspection is combined with a holiday, expenses must be apportioned.

Cost of preparing a Quantity Surveyor’s report showing

• Depreciation expenses
• Special Building Write-off

Seminars

• Cost of attending property investment seminars – only to the extent that they relate to operating or maximising the return on currently owned properties

Where money is spent on relevant seminars before any property is acquired, there will be no deduction available.

DEDUCTIBLE – Over a number of years

Borrowing Expenses

• Loan Application fee
• Lender’s legal fees
• Title search fees
• Lenders mortgage insurance
• Stamp duty on mortgage
• Mortgage registration fees

These are deductible over the period of the loan where the loan is less than five years. Otherwise deductible over five years.

Depreciation on Plant & Equipment (decline in value of depreciating assets)

• Carpets, vinyl, linoleum and other removable floor coverings
• Hot water systems, heaters and solar panels
• Air conditioning units
• Blinds and curtains
• Light fittings
• Swimming pool filtration and cleaning systems
• Security systems

Depreciation on the building construction (also called Capital Works Deduction)

• Your total capital works deductions can’t exceed the construction expenditure. No deduction is available until construction is complete.

Set of assets

• To be depreciated in accordance with their effective life.

For assets costing $300 or less, you can claim an immediate deduction for the entire cost. You can’t do this if the asset is one of a set of assets that together cost more than $300, making it a deduction over a number of years, for example, if you buy four dining chairs each costing $250, you can’t treat them as separate assets to claim an immediate deduction. Note that if you only rent your property for part of the year you will not be able to deduct the full amount of your expenses.

NOT DEDUCTIBLE

The following items are either not deductible or considered to be of a capital or private nature by the ATO.

On Purchase

• Purchase price
• Stamp duty on purchase
• Legal/conveyancing fees
• Pest & Property inspection
• Sourcing Fee
• Renovations immediately after purchase
• Repairs immediately after purchase

On Sale of a property

• Legal/conveyancing
• Advertising
• Agent fees

Pre-Purchase expenses including (especially if property was not then purchased)

• Attending seminars to acquire more property
• Cost of reports on property prior to purchase
• Travel to inspect property prior to purchase

Always remember to keep proper records in order to make a claim, regardless of whether you use a tax agent to prepare your tax return or you do it yourself.

1. Concessional tax on rental income
Where you hold an investment property in your own name, tax will broadly be payable based on your personal rate of tax, which could be as high as 46.5%. Similarly, if you were to hold an investment property through a company, the tax rate is 30%.

Due to the concessional tax rate that applies to superannuation investment earnings, rent received by your SMSF will be taxed at a maximum rate of 15%. And, because certain expenses related to the ownership of the property such as land rates, property maintenance etc will generally be tax deductible to the fund – the effective tax rate may come down even further.

2. Concessional tax on future capital gains
Special superannuation tax rates also apply to any capital gain made as a result of an increase in the property’s value. As a result, depending on when you decide to sell the property, any capital gain your fund makes on the sale of the property may be completely tax-free.

To summarise:

If you sell the property while still in the “accumulation” phase, the fund will generally pay CGT of up to 10% on any growth in the property value assuming that the property has been owned for at least 12 months).
On the other hand, if you decide to sell the property after you have transferred it into the “pension” phase, within your SMSF, any capital gain will be exempt from tax altogether!

3. Increased superannuation opportunities
In addition to the above, where the property owned by your SMSF is the property from which you run your own business, superannuation rules require your business to pay a commercial rate of rent to the fund – providing you with a way to accelerate your superannuation savings.

The rent that your business pays into your SMSF will be tax deductible to your business, but more importantly for superannuation purposes, it will not be treated as a superannuation contribution.

Because the tax benefits available on superannuation contributions are currently limited to $25,000 a year, or $50,000 if you are aged 50 and over1 , the ability to make tax deductible rent payments into your superannuation fund – without this rent counting towards these limits – enables you to build your retirement benefits quicker and tax efficiently.

4. Other benefits
Depending on your personal circumstances, there could also be other benefits from holding property within your SMSF.

For example, superannuation assets are generally protected from creditors in bankruptcy situations. So, in the unfortunate event that you fall on difficult times, holding property within your SMSF may provide you with some added protection.

Further, if you are a small business owner, superannuation assets are not included when determining your eligibility for the generous small business CGT concessions that apply when you sell your business or retire. By planning ahead, you can ensure that you better qualify for these concessions.

Deductions apply for any property you own that is available for rent, hence excluding your home or personal holiday accommodation. Listing with agents can help prove your properties are available for rent as the proper documentation will be in place.

Below is a list of items which you can claim as deductions against rental income this year which are either deductible immediately or after a few years of owning the property. Further below is a list of items that are not deductible, and usually questioned by the ATO. This will assist you in compiling your information and make it easier to prepare your income tax return. You can also use this information to improve your decisions in relation to managing your investment properties.

DEDUCTIBLE – Immediately

Expenses relating to the maintenance and management of your investment property, including interest on loans, can generally be claimed immediately, against your current financial year’s income.

Property Management & Maintenance Expenses

• Advertising for tenants – directly by you or where the agent charged you
• Body corporate fees or Strata Title fees and charges (Special levies for capital works on a building can only be depreciated at 2.5%)
• Cleaning
• Gardening/Lawn Mowing
• Pest control
• Security patrol fees

Rates & Taxes

• Water rates, charges & usage
• Council rates
• Land tax – first time owners have to lodge an initial land tax return with the Office of State Revenue in each state. They will not chase you up and they will charge additional interest for late lodgement, so you must initiate this

Property Agent

• Fees/commissions – including GST
• Postage & petties
• Statement fees
• Bank charges/fees
• Lease document expenses
• Letting fees

Administration Expenses

• Stationery used to maintain your rental records
• Postage on documents relating to property management
• Telephone calls relating to property management – ATO prefers to see a diary
• Legal expenses relating to debt collection or tenant problems
• Electricity & gas – where not covered by tenant

Insurance

• Landlords
• Building
• Contents
• Public liability

On Acquisition – from the solicitor’s settlement letter

• Balance of council rates
• Balance of water rates
• Balance of body corporate fees

Repairs & Maintenance

• Plumbing
• Electrical
• Handyman

Repairs and maintenance relate to wear and tear or damage as a result of renting out the property. The idea is that an expense is considered a repair when the functionality is being restored.

For example – fixing broken glass on a window is considered a repair, while replacing the whole window frame is an improvement. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. These falls under building costs, and are usually deductible at 2.5% per year for up to 40 years.

Repairs made immediately after purchase of the investment property or maintenance to make the property suitable for rental are considered to be of a capital nature – part of the cost of the property and can be depreciated. They are not deductible as the ATO considers the lower price of the property reflects its state of disrepair.

The ATO is particularly vigilant to catch people who are claiming expenses described as repairs when they are considered to be improvements.

Interest & loan account fees on loans to finance investment properties

• For the interest to be deductible the loan must have been applied to acquire an income producing asset e.g. rental property
• Where loans used for both investment property and private assets the interest has to be apportioned based on how much of the principal was used for which purpose. This usually happens when people are using a Line of Credit facility.

Travel expenses to

• Inspect property
• Maintain property
• Collect rents

A full deduction can only be claimed if the sole purpose of the trip relates to the property. Where the inspection is combined with a holiday, expenses must be apportioned.

Cost of preparing a Quantity Surveyor’s report showing

• Depreciation expenses
• Special Building Write-off

Seminars

• Cost of attending property investment seminars – only to the extent that they relate to operating or maximising the return on currently owned properties

Where money is spent on relevant seminars before any property is acquired, there will be no deduction available.

DEDUCTIBLE – Over a number of years

Borrowing Expenses

• Loan Application fee
• Lender’s legal fees
• Title search fees
• Lenders mortgage insurance
• Stamp duty on mortgage
• Mortgage registration fees

These are deductible over the period of the loan where the loan is less than five years. Otherwise deductible over five years.

Depreciation on Plant & Equipment (decline in value of depreciating assets)

• Carpets, vinyl, linoleum and other removable floor coverings
• Hot water systems, heaters and solar panels
• Air conditioning units
• Blinds and curtains
• Light fittings
• Swimming pool filtration and cleaning systems
• Security systems

Depreciation on the building construction (also called Capital Works Deduction)

• Your total capital works deductions can’t exceed the construction expenditure. No deduction is available until construction is complete.

Set of assets

• To be depreciated in accordance with their effective life.

For assets costing $300 or less, you can claim an immediate deduction for the entire cost. You can’t do this if the asset is one of a set of assets that together cost more than $300, making it a deduction over a number of years, for example, if you buy four dining chairs each costing $250, you can’t treat them as separate assets to claim an immediate deduction. Note that if you only rent your property for part of the year you will not be able to deduct the full amount of your expenses.

NOT DEDUCTIBLE

The following items are either not deductible or considered to be of a capital or private nature by the ATO.

On Purchase

• Purchase price
• Stamp duty on purchase
• Legal/conveyancing fees
• Pest & Property inspection
• Sourcing Fee
• Renovations immediately after purchase
• Repairs immediately after purchase

On Sale of a property

• Legal/conveyancing
• Advertising
• Agent fees

Pre-Purchase expenses including (especially if property was not then purchased)

• Attending seminars to acquire more property
• Cost of reports on property prior to purchase
• Travel to inspect property prior to purchase

Always remember to keep proper records in order to make a claim, regardless of whether you use a tax agent to prepare your tax return or you do it yourself.