If you invest in property, shares or your own business, here’s why you should act
now for a potential windfall at tax time.
This article was written by Anthony Keane for The Australian on 15th June 2024.
Business
Investors and small business owners are being urged to make smart moves in
the next fortnight to maximise their tax benefits for this financial year.
Australia has 2.2 million residential real estate investors, 2.6 million small
business owners and an estimated 7.7 million shareholders, and many miss
out on money because of mistakes and myths around tax time.
These tips can help deliver the biggest refund possible, but in many cases you
will need to act before June 30.
1. LANDLORDS’ BIG FIVE
Real estate investors should know their tax-deductible expenses.
There are many common deductions and the biggest are usually investment
loan interest, property manager fees, depreciation, council rates and landlord
insurance. Other big bills can include land tax, strata fees and repairs and
maintenance.
Check the Australian Taxation Office’s Rental Properties guide on ato.gov.au
for more information.
BMT Tax Depreciation chief executive officer Brad Beer said a about three
quarters of property investors did not maximise their tax deductions.
2. DEPRECIATION ISN’T DONE
Rule changes by the Coalition government in 2017 removed property
investors’ ability to claim depreciation of carpets, curtains and other items
that they did not buy new. This prompted many investors to wrongly think
getting a depreciation report was unnecessary for anyone buying property
second-hand.
However, investors can still claim depreciation on new items, renovations and
construction costs, known as a capital works deduction. This deduction alone
is typically 2.5 per cent of a property’s building cost each year – often $5000
or $10,000.
Cheap online depreciation schedules may cost less than $300 but you get what
you pay for, while a comprehensive report will cost $400-$800, which is tax
deductible.
“If you are buying a depreciation schedule, we say buy and pay for it in June
not July because you get to claim the tax deduction for this financial year,” Mr
Beer said.
“You can go back an amend two years of previous tax returns,” he said.
3. PREPAY INVESTMENT COSTS
Mr Beer said repairs and maintenance on an investment property could be
brought forward to pay now so the deduction could be claimed for 2023-24.
Investors who expect to earn less income next financial year could consider
prepaying a year’s interest on their investment loan, bringing forward that
deduction. Savvy investors often pay their annual landlord insurance policy in
June.
People who borrowed money to invest in shares or other assets also can
prepay interest a year in advance.
4. CAPITAL GAINS AND LOSSES
Sold an investment property, shares or cryptocurrency for a big profit? That
means you’ll have a capital gain, where the profit is added to your taxable
income in the year the asset is sold. If you’ve held the asset for more than 12
months, only half the gain gets added to your income.
CreationWealth senior financial adviser Andrew Zbik said there were
investment strategies that could reduce your capital gains tax liabilities.
“Voluntary super contributions are tax-deductible, and if you have a large
capital gain this financial year, they can offset the gain,” he said.
This strategy could be turbocharged by catch-up super contributions, where
people can inject even more into super if they did not use their full $27,500
annual contributions cap in previous years.
5. DON’T FORGET DEBT
While pumping extra money into super could offset capital gains elsewhere
through a tax deduction, many investors might be better off paying down their
mortgages, Mr Zbik said.
“It’s a good one for people who have surplus savings and don’t have to pay
down any debt,” he said of the super strategy.
“But given the higher interest rates, if you have non-deductible housing debt,
just focus on paying that down.”
6. TIMING IS EVERYTHING
If you’re about to sell an asset for a capital gain, consider waiting until July so
you don’t have to pay CGT on it until after July 2025.
Similarly, loss-making investments can be sold before June 30 to offset capital
gains, but they can’t offset other taxable income.
Small business owners, too, can time their sales and purchases around the end
of financial year.
“Think about what expenses could you prepay in this financial year,” Mr Zbik
said.
MYOB executive general manager SME Emma Fawcett said making purchases
in June could be a smart move for business owners looking for a quick
turnaround from payment to tax refund.
“EOFY sales might also be a good time for small businesses owners to snap up
a bargain on larger purchases, such as a new piece of equipment they’ve been
saving for,” she said.
7. ASSET ACTION
Ms Fawcett said the $20,000 instant asset write off scheme was an excellent
opportunity for business owners to maximise their tax refund while buying a
high-value item.
“Businesses with an annual turnover of less than $10 million can claim an
instant deduction of the full value of assets that cost less than $20,000,” she
said.
“We’re hoping to see this legislated in the coming week so SMEs can take
advantage of it.”
8. BUSINESS CLEAN-UP
Dr Raftery said business owners could scrap obsolete stock and write off bad
debts.
“Got some old plant or stock that your business simply can’t sell?” he said.
“Then physically write it off before 30 June and get a tax deduction for it this
year. You can value trading stock at the lower of actual cost, replacement cost,
or market selling value.”
Bad debts that were originally shown as income could potentially be written
off before June 30, Dr Raftery said.
9. INCOME -SPLITTING WITH SPOUSES
“It amazes me how many smart business people are really dumb when it
comes to reducing tax,” Dr Raftery said.
“Too often I see them paying 47 per cent tax on income, which could be put
under their lower-taxed spouse or company,” he said.
“If you are paying a wage to your spouse from your business, ensure that you
can justify the amount paid based on the time and the skillset required.”
10. GET A GOOD ACCOUNTANT
Rules and taxes for investors and business owners are confusing and
constantly changing, so professional advice is vital.
“Great accountants are like surveyors … they know where the boundaries
are,” Dr Raftery said. “And their fees are tax deductible!
Cooking up tasty tax deductions
Small business owner Alice Bennett, founder of cake-baking business Miss
Trixie Drinks Tea, said she had a solid network to support her business and
tax decisions.
“Depending on the needs of the business, I might look at tax time deals for
equipment or other investments I need to make,” she said.
“It can be a good time to get a bargain. Typically, I’d be deducting expenses
such as ingredients and packaging.”
Ms Bennett said keeping good records was helpful “so tax time isn’t a
scramble”.
She said she was adapting to meet today’s tougher economic environment.
“The post-pandemic cash splashing has well and truly run out of steam.
“The cost of ingredients has gone through the roof, meaning our butter isn’t
going as far as it used to, so we’ve had to innovate and be creative to make the
finances work. We launched a merch line, which sold out.”