June 15, 2010
In the lead up to a new financial year, Australia's largest independently-owned mortgage broker, Mortgage Choice reminds existing and potential property owners to make the most of their tax return.
A great way for all residential market players to get ahead is to legitimately maximise any tax deductions before 30 June. Homeowners should also consider placing the resulting tax return directly into their home loan, while those looking to achieve home ownership status should contribute it into their deposit account. Investors may find a better use, depending on their goals.
Mortgage Choice senior corporate affairs manager, Kristy Sheppard said, “Tax time is when many people consult their accountant and/or financial advisor for an annual financial health check. This presents a great opportunity to reassess your position and determine what strategies are available to you and how these can be used to benefit your property plans.”
“Investors will be exploring tax deductions for their rental property or properties. For example, you may be able to claim expenses such as outlay for travel to inspect an investment property, cost of advertising to attract a tenant, agent and/or management fees, body corporate fees, council rates, gardening, pest control, repairs and maintenance, water costs, home loan fees and loan interest.
“For many, the potential tax benefits of negative gearing are the greatest lure to property investment. Negative gearing occurs when the combination of annual interest repayments plus any deductible expenses is higher than annual rent received from tenants. This allows eligible property upkeep and loan costs to be deducted from your gross income. Then you are taxed only on that reduced income.
“This is especially popular with high income earners and those with larger loans, as the more money borrowed to buy a property, the more interest is owed, and therefore the bigger the possible tax deduction. For this reason and more, it is a good idea to consult a reputable tax adviser and mortgage broker before choosing a home loan and buying a property, to learn about the tax deductions available on your potential investment and what loan type suits your long-term strategy.
“Moving on to prospective investors and homebuyers keen to enter the market, tax time presents a great opportunity to put a tax return to good use for the upcoming property purchase.
“Firstly, lenders have tightened assessment criteria and now require borrowers to contribute higher genuine savings deposits accumulated or held over a period of three months or more. This is often 5% of the purchase price for homebuyers and up to 10% for investors. Keep in mind, equity from an existing property may be considered as genuine savings. So, it is worth considering assigning your tax return to a high interest savings account to reap the eventual benefits on your deposit amount.
“Secondly, you may use your tax return to pay off other debts that feature a higher interest rate, so you have less debt when the time comes to apply for a home loan or mortgage top-up.
“If you are already repaying a home mortgage, you may choose to contribute your return as a lump sum payment. Repaying your mortgage quicker speeds up the accumulation of your equity and reduces the length of the loan term and interest owed over that term.
“If a borrower with a $300,000 home loan at 7% p.a. who is five years into their 30-year loan term contributes a lump sum payment of $500, they will save around $2,359 in interest plus one month off the loan term. However, if they did this every year, dividing the return by 12 and paying it each month over the entire term, they will save around $19,961 in interest plus 16 months.
“Whatever your status, it is important to consult experts and ensure your decision is well thought out.”
For further information or to arrange an interview, please contact:
(02) 8907 0472 or 0407 416 124