For property investors, timing is everything. The exact date of when you buy and when you sell can impact your profits substantially—and with the end of financial year fast approaching, now is the time to make your move.
To begin with, you’re not the only one who has their eye on the June 30 deadline. Property sellers, too, may be motivated to sell their real estate asset before the financial year ticks over.
In fact it may be so beneficial to them tax-wise to quarantine the sale within this financial year that you could find yourself with the upper hand when negotiating. Your offer may be $20,000 less than someone else is prepared to pay, but if you’re willing to sign the contract immediately and settle swiftly, that could tip the conditions of the sale in your favour.
There are other ways in which an autumn property transaction could see you benefit, too.
Time the market to maximise tax deductions
They say that ‘time in the market’ is a sure-fire strategy for building your wealth in real estate, but ‘timing the market’ can be just as important for property investors.
Ideally you want to buy at the bottom of the property cycle, when house values have bottomed out, rather than at the peak when prices are potentially over-inflated.
But timing your purchase so you sign your contract before the end of financial year can be another smart move, says Michael Sloan, a qualified financial planner, mortgage broker and real estate agent from The Successful Investor.
“Settle before June 30 if you can, as some tax deductions are written off in year one. By settling just before the end of the financial year, it means tax back in your pocket sooner,” he explains.
This is particularly important on a tax deduction such as deprecation, which Michael believes investors should arrange “for all investment properties, no matter how old they are”.
Depending on method of depreciation you choose (either diminishing value or prime cost), you could have a deduction worth several thousand dollars. This is a claim you can make on your tax return immediately as of July 1, even if you only signed the contract to purchase the property a few days earlier in June.
Boost your cashflow
As the new financial year approaches it is also a good time to plan ahead.
One strategy that property investors can use to improve their cashflow is to apply for a tax variation.
“A tax variation will put property tax breaks in your pay packet instead of waiting a year for your tax refund,” Michael says.
For instance, say your property costs you $20,000 per year and the rental income is $15,000. The loss of $5000 can be claimed on your tax return, along with a $5000 depreciation deduction (a total claim of $10,000).
If you pay tax of around 37 per cent + 2 per cent Medicare levy, you would get around $3900 back at tax time. However with a tax variation, you can receive that money in your pay packet each week. In our example, this would put $150 cash in your hands each fortnight—money that could be used to pay for property expenses, or to pay down the mortgage.
Source - realestateview.com.au