Rental property changes

Hamish Mexted Asset Protection, Reducing Tax

There’s been a lot of talk lately about tax and interest rate changes on rental properties. Here’s a very quick run through on the questions we’re frequently asked:

  1. What does Capital Gains Tax mean for me? Our quick answer is not to panic on this one. Even though the Reserve Bank are raising it, it’s been beaten to death through a General Election and its introduction seems unlikely. Further, it doesn’t solve the property price problem in Australia, so I personally doubt that it would solve the problem here. That’s not to say we’ll never have it, but it’s just too far away and too unknown to plan for properly now.
  2. Don’t we already have a Capital Gains Tax? Well, yes, sort of. If you buy a property now, and intend to sell it, then you must pay Income Tax on it.  Watch out – we’ve seen this catch some people. Talk to us if you’re uncertain of your position.
  3. Wow, that SBS 5 year interest rate was really sharp! Yes, yes it was. I’m strongly of the view though that paying off your mortgage quickly is by far more important than the interest rate you save. That said, if you’d like a sharp interest rate (like that SBS rate) we can put you in touch with people who are great at haggling the best interest rate with the banks.
  4. I’ve see loss ringfencing mentioned – what is it? Loss ringfencing would have a much more significant immediate impact on property investors than a capital gains tax. In short, it would mean you’re unable to offset the loss from your rental property against your other income. This would stop any tax refunds people are currently getting from your rental property. Personally I can’t see this getting too much traction, however it’s something to watch out for.
  5. I’ve got no cash in the bank – can I buy a rental? In short, YES. You can look to use the equity you’ve got in your existing properties as a deposit on the new rental. You could ‘find’ this equity by having the existing properties revalued. If you’re going to go down this path please talk to us first – there’s a few things we need to work through first.

That’s it for now, but if there’s any other accounting or tax questions you’d like answered drop us a note!