Many people would overlook the importance of the capital gains tax and negative gearing implications when they set eyes on the investment property they want to buy. They would talk to their mortgage broker and lawyer about how to settle the property, and how to get the lower interest rate. They would forget the fact that if the property is wrongly structured, then they might end up paying thousands of capital gains tax dollars and also wasting money on the negative gearing tax return.
As the most experienced and professional accountant in the eyes of my many clients, I have seen numerous cases where the property is in the wrong structure, and unwinding the existing structure will be very costly and difficult. For example, I had seen clients putting their property in a family trust structure, and thinking the rental loss in the family trust could be used to offset their normal PAYG income. Unfortunately, the rental loss in the family trust is trapped and carried forward, and can only be used to offset future income in the family trust.
I had also seen clients who had settled their investment property and not filed any tax return for numerous years. When I asked them the reason behind it, I normally was told that the reason why they did not do the tax returns was the rental income is much less than the rental expense. The consequence of not doing the tax return when this happens is you will potentially get the Failure to Lodge Tax Penalty of around $900 – 1000 dollars per failure to lodge. Also, you will lose all the rental losses you can accumulate and carry forward to reduce the future capital gains tax in the future.
The way you structure your investment property will also affect your land tax from different states. Especially if you or your other half are not Australian Citizens, but hold a permanent resident visa.
Sometimes, it is possible to derive a different land tax value if you structure the property by yourself, versus purchasing the property with your other half in joint name. The differences in the land tax payable will be exemplified in cases where your other half or you are on a permanent resident visa and did not stay in Australia before the notice period for over 200 days.
The foreigner who owns a residential dwelling, including those on a permanent resident visa who did not meet the 200-day test will need to pay an extra 2% of the land value as a term land tax surcharge. Hence, it is important when you are purchasing an investment property, please talk to one of the most professional and experienced accountants and tax agents in Ashfield Sydney, and Adelaide. We will be able to provide insightful advice about the alternative way to structure your property. Our EG Home Loan Specialist can also help you to assist with your home loan, and get the lower interest rate for you.
At EndureGo Tax, we are here to help you, as one of the most professional and trustworthy tax accountants and tax agents in Ashfield Sydney, and Adelaide, we will help you to maximize the tax refund from your investment property legally.