Australia’s leading mortgage broker, Aussie Home Loans, today urged investment property owners to investigate to minimise their tax exposure in the lead-up to the end of the financial year on June 30, 2010.
Property investors should consult their accountants or financial advisers to potentially use the option of pre-paying interest repayments for the next year before June 30. The interest repayments are often tax deductible and can have the effect of lowering the overall income tax paid by investors to the Australian Tax Office.
If investors have sold a property during the financial year and posted a capital gain, it would be worthwhile to sell any loss making investments like shares before June 30 to offset the tax on the gain.
Investors with their own self-managed superannuation fund may be able to hold a share of the investment property in their fund, to obtain tax advantages. Superannuation contributions are taxed at a lower rate and repayments to home loans may be made through superannuation funds.
Improvements like additions and repairs to investment properties are treated as capital expenses and can be used to offset capital gains when the property is sold.
Owners of investment properties should also seek to maximise depreciation tax benefits and they should obtain a depreciation schedule from an expert in this field.
Aussie Founder and Executive Chairman Mr John Symond, said “investment property can provide significant benefits to those people saving for their retirement, as there are many deductions they may not have considered.
“I suggest they see a tax expert to take them through the various deductions and strategies that can be employed against investment properties. For those interested in investing in property, it is very worthwhile to see an Aussie broker as there are many different loan products in the market – and there are some which are better suited to investments.”
An Aussie broker will offer guidance, assess eligibility, lodge the application and then support the first home buyer borrower through the home loan process. Aussie brokers are available 24 hours a day, seven days a week, at the request of customers who call Aussie on 13 13 33.
As one of the country’s largest non-bank providers of financial services, Aussie has a loan book of over $36 billion. With the acquisition of Wizard, there are now over 150 retail stores and 850 brokers across the country ready to help customers get a better deal on their finances.
Tips on choosing an investment loan
Like when choosing any other home loan, you need to compare rates, features, fees and charges. Property investment loans are not too different from any other type of home loan. Like other loans you can choose fixed, variable or split interest rates and flexible features like redraws. But there are two types of loans that tend to be more attractive to investors.
- Interest only loans
- Line of credit loans
With most standard home loans your repayments combine the interest you owe on the principal amount you borrowed, plus a little bit of the that principal as well. In this way you slowly chip away at that original amount over the term of the loan.
With an interest only loan the principal remains the same. You only have to pay the original amount you borrowed when you finally sell the investment property (and hopefully make some capital gain).
This type of loan is useful for investors because:
- Your monthly repayments are less than they would be if you were pay off principal as well.
- You can get tax deductions on the interest payments, but none on principal repayments.
- It makes it easier to calculate the true returns from a property.
Line of credit
If you already own a property, a line of credit may enable you to tap into any equity you have built up in that property, and use it as a deposit for your investment property.
A line of credit loan allows you to draw from a fixed amount at any time to pay for whatever you want. It’s kind of like a credit card with a big limit but the equity in your home acts as security for the loan.
*This is document contains general information only. Aussie does not provide financial advice. Aussie recommends that individuals seek their own financial and tax advice before investing.