Discover how your tax situation is transformed
A recent analysis of schedules prepared by BMT Tax Depreciation highlighted that 22 per cent of schedules were for primary places of residence (homes) which the owners turned into rental properties.
This demonstrates a popular trend occurring in the residential market, in which a significant number of home owners are recognising the additional value of renting out their home rather than selling.
There are many reasons for this trend. Some home owners may need to temporarily relocate, with a plan of returning to their home. There could also be external economic factors or events which create a temporary peak in rental demand, causing homeowners to take advantage of the higher rental yield.
The most common reason is usually due to the prospect of long term capital growth along with the opportunity to use equity to finance the next home and avoid selling costs.
Across some of our major cities, the majority of people who adopted this strategy would have achieved substantial capital growth in recent years.
This particularly relates to those acquiring their next primary place of residence, having carried more than one property through a housing boom. Of course this can work in reverse should there be a correction in housing prices.
No matter what reason a home owner has when deciding to rent out their home, it’s important they’re aware how this will transform their tax situation.
The Australian Taxation Office requires owners of investment properties to report any income they earn. They also allow owners of income producing properties to claim the expenses associated with the property.
Some of the deductible expenses for an income producing property include interest on a loan, council rates, property management fees and insurance premiums.
By renting out their home, owners will also become eligible to claim depreciation deductions for the structural components of the building as well as the *plant and equipment assets contained in the property, subject to qualifying dates.
* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand-new property will still be able to claim depreciation as they were previously. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.