Month: November 2019

How a Mortgage can improve your Financial Position / How a Mortgage can grow your Wealth

A mortgage strategy can have a positive impact on your ability to maintain cash flow, sustain your home mortgage and provide investment opportunities for you. Setting up a mortgage need not mean impairing your wealth accumulation – in fact, your mortgage, managed well, can enable you to acquire assets, increase your tax deductions and improve your general financial status.

To start, you’ll want to align your mortgage strategy with your future property and financial goals. Considering your goals, you can take three steps towards creating a bespoke mortgage strategy:

    1.   Plan your lifestyle – Decide your property and investment goals.
    2.  Create a strategy – With qualified professional advice, determine the steps needed to manage your mortgage to reach your           goals in Step 1.
    3.  Choose who will help you to execute your mortgage strategy – Find a lender, agree a suitable interest rate and communicate           regularly as your circumstances change.

Your mortgage strategy will profoundly affect your wealth growth, so you may want to consider these options:

Offset Account/s

An offset account is a practical device – a transactional account linked to your home loan – to help reduce the amount of interest paid and the term of a variable home loan. It is often included as a feature with most standard variable mortgages, so it is likely you will have one at your disposal.

The balance in your offset account is ‘offset’ against the mortgage balance and interest is charged only on the lowered mortgage balance. You have financial flexibility by being able to withdraw from the offset account at any time, whilst still paying down your home loan.

Budget Management 

Managing your money is essential to the success of your mortgage strategy. You will need to stay abreast of your expenditure and keep a record of your remaining balance to enable you to more easily make investment decisions and still pay off your mortgage debt. A budget can be created and managed with your lender to show your financial position at any time.

Interest Claims

When you borrow money to pay for business expenses and for investment costs, you may be able to claim a tax deduction for the interest paid on the borrowed money. By borrowing money pre-tax for tax-deductible purchases, you can save money. Seek advice to ensure your interest claims are permissible tax deductions.

Manage Your Risk

Managing your financial risk is as important as managing your money. By managing your cash flow and ensuring you maintain a balance of funds, you can help mitigate any potential financial loss at times of investment insecurity.

Your offset account can offer a buffer through the redraw of equity in your home if needed. Fixed interest rates on your loans can provide certainty through difficult times. Restructuring your home loan and/or changing lenders can keep investment opportunities open to you by enabling you access your wealth for future growth.

Wealth Growth

These aforementioned options to help grow your wealth, implemented with expert advice, may allow you to hold on to your investment property/ies (avoid selling and incurring the associated costs), minimise your debt, optimise tax deductions where applicable and, ultimately, enable you to acquire more assets and to secure a more stable financial future.

As it can be highly impractical to design your own mortgage strategy, you are encouraged to solicit a mortgage lender or advisor. Call YML Group’s Finance Team for an appointment.

How can YML help?

Talk to our YML Finance Team today to see how YML Group can assist you with your mortgage strategy. Contact us on (02) 8383 4400, or by visiting the Contact Us page on our website.

ATO is Auditing Rental Property Expense Claims

Owners earning an income from their primary and/or investment property must look at their tax obligations and ensure they understand the basics. Keeping accurate income and expense records is a great way to start. Use these records to ensure you make the most of your investment by declaring all rental income and only deducting appropriate expenses.

Whether you are a seasoned rental property owner or you are new to the game, tax law can be complex and the Australian Taxation Office (ATO) is focussed on auditing those investors with impermissible income and/or dubious claims.

Rental Income

Firstly, the ATO looks for evidence that your property is genuinely a rental. Only the periods of time that your property is available for rent may be considered generating assessable income. This stands to reason if the rental property is also your home where periods of personal use may not be claimed. Where the rental property is an investment or secondary property, you must report all rental income derived from it during periods it is let on a commercial and/or non-commercial (family/friends) basis.

Expense Claims – Don’t make a mistake!

Do you want to avoid an ATO audit? It’s important to stay abreast of the changes in tax law and to adhere to the ATO’s strict guidelines for how to treat rental income and related expenses. So long as you can substantiate an expense and it is permissible, you can claim it.

Generally, costs such as advertising your rental property, loan interest and related fees, council rates, strata levies for sinking funds (apartment/villa), building insurance and other relevant insurances may be tax-deductible.

Expenses incurred in your acquisition of the property, expenses incurred by a tenant such as utility usage (electricity, gas, water), and especially costs paid during periods when a property is not available for rent may not be claimed as tax deductions.

Travel expenses, in particular, may not be claimed since 1 July 2017 when the ATO excluded travelling to and from a property – unless a business run by you is being carried on within it – from the permissible expenses list.

Depreciation

Repairs to a rental property may be tax-deductible. Improvements, however, may be depreciated. For example, if you fix a broken oven, it is a repair expense, but if you replace a broken oven, that may be deemed a capital improvement.

Depreciation may be a valuable tax-time tool for rental property owners. You can claim depreciation of a building and its built-in components over a number of years. Consider using a Quantity Surveyor to ascertain the value of a building’s construction and its parts, making it easier to create a depreciation schedule for your rental property.

ATO Audit

The ATO would check that your rental property is available for rent by investigating rental property websites and other means of confirming that you are declaring any and all rental income. An ATO audit would require you to give proof of rental listing/s, advertising materials and evidence (photos) of a property’s rentable condition.

Finally, remember to keep invoices, receipts and bank statements for all expenditure on your rental property. This is your most basic tenet for best practice rental property investing.

The ATO’s 2019 guide for rental property owners: https://www.ato.gov.au/uploadedFiles/Content/IND/downloads/Rental-properties-2019.pdf

How can YML help?

Talk to our Accountants today to see how YML Chartered Accountants can assist you with your rental property investment. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.