Merridy Moir Checklist

IMPROVING PROPERTY INVESTMENT IN REAL TIME, NATIONALLY.

Wow, June 30. What does it mean? It’s the end of another financial year. Whether you work for yourself, have a job, or are retired, this time of year is the deadline to ensure your financial transactions are in order.

At Real Property Matters, we work closely with property investors as they handle interest rate hikes, heavy compliance changes, and tough competition to secure properties. But despite these challenges, rising property prices throughout the country mean investors’ property equity keeps growing.

As competition to buy properties has grown, investors are seeking opportunities further from home. We’ve gathered tips from trusted property experts nationwide to offer you great investment advice and insights into their local markets.

Can owning investment properties and planning for retirement go hand in hand? Is purchasing your next property through your Self-Managed Super Fund (SMSF) an option? We explore the pros and cons of owning investment properties personally or through your SMSF.

As the median dwelling value in Australia nears $800,000, investors still favour properties as their primary wealth-building strategy. But with this ongoing growth, the difference between original purchase prices and 2024 sales prices has expanded, creating significant profits. This brings capital gains implications into play, and we’ll explain how they work.

Want an edge in the investment property market? Wondering if furnishing your property gives you a reason to raise the rent? We’ll explore the financial side of furnishing your property and break down what this strategy looks like.

I hope you like this edition of our 2024 checklist! If nothing else, we trust it gets you thinking.

To quote Benjamin Franklin:

Kind regards, Rob

Toole

INTRODUCTION BY ROB TOOLE

REAL ESTATE RENTAL WRAP: INSIGHTS FROM AROUND THE COUNTRY

Did you know that if you listed your property for sale, 23% of all enquiries are now made by interstate investors? This figure is up considerably from previous years.

Every real estate market has its unique dynamics and compliance requirements that need careful navigation.

We’ve asked five respected property partners from across the country to share their insights on the most significant compliance changes in their area and the property types experiencing the highest demand.

ACT

LYN FAIRWEATHER

In Canberra, the biggest recent compliance change introduced by the ACT government is minimum standards for ceiling insulation. This aims to reduce heat loss and energy usage, as uninsulated Canberra homes can lose up to 35% of heat through their ceilings.

One-bedroom units are showing the most demand due to their entry-level price point.

Having a property manager makes handling conflicts between parties simpler as they have established processes to follow. This removes emotion from the situation, making it simpler to negotiate.

When you’re looking for an interstate property manager, ensure their agency offers great communication options, like an online portal, to provide transparency and accessibility across different time zones.

We’ve also asked for their advice on addressing these questions:

• Investors are always seeking ways to tighten their belt, so could self-managing their property be an option?

• With the current trend of interstate investing, what should investors look for in a professional partner to manage their property?

Let’s dive in to find out what they say!

LYN FAIRWEATHER

Executive Property Manager

LJ Hooker Gungahlin

“Canberra is a stable market and is projected for population growth which will keep rental yields high.”

NATALIE SOUTH General Manager Housemark

NATALIE SOUTH

Minimum housing standards in Queensland began to take effect in September 2023. These include being free from vermin, dampness, and mould, as well as being weatherproof and having functioning locks.

Demand for properties in the $400-$600 per week range is currently very high. Having a property manager, with an unbiased approach and a complete understanding of the requirements, wants, and needs of both the landlord and the tenant, is a major benefit over selfmanaging a property.

When searching for a property manager to look after your interstate investment, look for someone who has a proven track record in achieving excellent outcomes in leasing prices, as well as a dedicated focus on property management and consistency in their team.

“At the core of everything we do, tech will never take over the role of a property manager because the core of property management is people.”

VIC

DANIJELLA PEKIC

Compliance has been a really big change in Victoria and our market. Investors are responsible for regular smoke, gas and electricity compliance inspections.

A single storey four-bedroom home is currently in most demand.

The problem with self-managing your own property is two-fold: staying across all the compliance requirements, and ensuring your rental return reflects the correct market value.

When choosing a property manager, go with the bigger brands. Bigger brands will have more procedures in place, so do your homework. Check their market share of the area and monitor their online reviews.

DANIJELLA PEKIC Investment Specialist Harcourts Rata

and Co Melbourne VIC

“Choose a property professional that you trust and feel comfortable with.”

SAMANTHA RILEY PM Department Harcourts Alliance

“Make

WA

SAMANTHA RILEY

Starting from May 2024, the first roll out of new rental reforms will take place in Western Australia. These include rental increases only once every 12 months, not denying pets, and banning rental bidding.

Family homes with yards are being retained quickly, but units and apartments are not in such demand.

Having an expert across all the reforms and legal changes is a major benefit in the property manager vs selfmanaged debate. With rental prices skyrocketing, there are a lot more evictions happening due to rental arrears.

A professional who knows how to manage this, and can minimise the loss of rental income for the investor, is extremely beneficial. At Harcourts, almost 80% of our investors are from interstate. Choose a company that has both excellent brand presence and staff longevity.

sure you research your area. Some well-established areas are getting great returns, whereas other newer developing areas have less competition for properties and, in turn, are harder to achieve maximum yields.”

SA

MERRIDY MOIR

Bond structure in South Australia has been the biggest compliance change. This new four-week bond structure is not enough to cover owners in the event of needing to lodge a claim.

Affordable housing below $600 per week is where there is strong demand in Adelaide. When deciding between self-managing and engaging a property manager, keep in mind that a property manager keeps up to date with legislative changes, has experience in screening tenants, and can have the ‘negative’ conversations with tenants directly - especially when increasing rent.

Heads up: Some insurance companies do not insure self-managed properties.

Before buying interstate, first choose the property manager. Having that professional who has good experience and insight into the area, as well as being highly communicative, will be your best option.

MERRIDY MOIR Senior New Business Executive Ouwens Casserly

“Don’t go for high density living. Go for a house, or unit in a small low-rise complexthey will always hold their value.”

CAN PROPERTY OWNERSHIP AND RETIREMENT PLANNING BE COMBINED?

FOR MOST PEOPLE, INVESTING IN PROPERTY IS THEIR FAVOURITE STRATEGY TO BUILD WEALTH. BUT HOW ABOUT WHEN YOU’RE PLANNING YOUR STRATEGY FOR RETIREMENT? CAN THESE TWO STRATEGIES BE COMBINED?

Could buying a property through a self-managed super fund (SMSF) be an option for you?

We explore some of the benefits of doing that that but also look at what compliance challenges and expenses you need to be aware of. An SMSF must be run for the sole purpose of providing retirement benefits for yourself. You’re also accountable for complying with super and tax laws. Managing your SMSF can be demanding and timeconsuming, even with professional assistance.

HAVING CONTROL OVER YOUR SUPER IS APPEALING

With various investment options and recently having the additional ability to borrow money for an SMSF investment, there’s been a notable rise in property ownership through SMSF.

But before racing off to create your own SMSF, it’s best to see a qualified, licensed financial adviser to help you decide if an SMSF is right for you.

ANNUAL TAX CONSIDERATIONS

Minimising your taxable income is an essential strategy with all investment plans. So, let’s look at the differences.

When you buy an investment property in your own name, the rental income is added to your regular income. After deducting expenses like mortgage interest, depreciation, management fees, and maintenance, the remaining income is taxed at your marginal tax rate, which ranges from 19% to 45%.

When you buy a property through an SMSF, the annual tax benefits are one of the key advantages. The rental income minus the deductions gets calculated. The remaining balance is taxed at the concessional rate of 15%, regardless of your personal tax rate. This means substantial savings can be made, especially if you’re on a higher tax bracket.

WHICH ONE SHOULD YOU CHOOSE?

Buying your next property in an SMSF may not be for everyone. It is ideally suited for the long game that requires careful consideration. After all, there are pros and cons for both options.

In a nutshell, buying property as an individual gives you control and flexibility, while SMSFs

CAPITAL GAINS TAX CONSIDERATIONS

The ATO treats the sale of an investment property differently from the sale of a primary residence.

When selling your investment property, the profit you earn is subject to capital gains tax. However, if you’re an Australian resident and have owned the property for more than 12 months, only 50% of the sale profit will be taxed. Additionally, there are deductions available for buying and selling expenses that can help reduce the taxable profit.

In an SMSF, the profit from the property sale is handled differently. The timing of the sale is critical. If you sell after holding the property for over a year, this will entitle the fund to a one-third discount on any capital gain, reducing your tax liability to 10%. Furthermore, once you’re retired, capital gains obligations are waived, and the profit becomes tax-free within the SMSF.

ASSET PROTECTION CONSIDERATIONS

Assets held in an SMSF are protected from creditors because they’re held in a separate legal structure from individual members. This means the investment property is shielded from potential claims if any members encounter legal or financial issues or hardships.

COMPLIANCE CONSIDERATIONS

Operating an SMSF means following strict rules from the ATO and ASIC. Trustees must ensure the fund complies with regulations for contributions, investments, reporting, and record-keeping.

Not following these rules can mean penalties and losing concessional tax benefits—something to be avoided. Compliance with these rules also means higher costs to administer the property.

offer tax perks and asset protection. It’s important to take the time to weigh up your choices.

Getting expert tailored advice is advisable. After all, you want a smart property investment plan to ensure you have lasting financial gain.

*The above is a brief overview of the differences between different ownership structures and not intended for investment advice. When considering what option is best for you, always seek professional advice.

RECORD HOUSE PRICES WHATS THE FLIP SIDE

PROPERTY PRICES IN AUSTRALIA KEEP RISING DUE TO FACTORS LIKE POPULATION GROWTH, AFFORDABLE INTEREST RATES, AND LIMITED HOUSING SUPPLY. IN THE PROPERTY INVESTMENT SECTOR, GOVERNMENTS HAVE ALSO RAMPED UP COMPLIANCE REGULATIONS, LEADING SOME INVESTORS TO CUT AND RUN, SELLING THEIR PROPERTIES FOR SIGNIFICANT PRICE INCREASES.

Capital gains tax (CGT) only applies to investment properties, not to your private home. Your primary residence is exempt from CGT, meaning any profit you make from selling it is money in the bank – it’s tax free.

Although CGT has been around for nearly 40 years, it’s now become a hot topic. It affects the sale of every investment property. CGT is a type of income tax you need to think about when buying and selling any investment property.

CGT has seen subtle changes since it was first introduced back on 20 September 1985. Put simply, it’s the difference between what you paid for your property (plus purchase costs) and what you sell your property for (minus your selling costs).

When you sell a property, it triggers a CGT event. If you made a profit, you might owe CGT.

So, lets dig a little deeper to understand what’s involved. The capital gain can get discounted, depending on how you purchased the property and the length of your ownership.

If you owned the property as an individual or a trust and held the property for over a year, you’ll receive a 50% discount on the capital gain. Companies and foreign investors do not qualify for the same discount.

Another way to increase the capital gain deduction is through depreciation on second-hand fixtures and fittings, such as carpets, curtains, and kitchen appliances. If the property is owned by an individual and these items were second hand at the time of purchase, the depreciation can be accumulated and applied to reduce the impact of the capital gain.

LET’S LOOK AT HOW THAT WORKS…

STEP 1: We value the second-hand fixture and fittings.

STEP 2: We work out your loss by calculating the depreciation in the items.

STEP 3: If you subsequently replace these items, your loss is the difference between each item’s initial value and the value at the time of the replacement.

The total depreciation not already claimed becomes the capital loss.

Look at this example for a basic CGT illustration: A property investor buys a property for $695,000, spends $28,000 on a patio and some internal painting to get the property ready for a tenant. After two years, he sells it for $820,000.

pest and building inspections, stamp duty and solicitors fees, for the purchase of the property

However, in this scenario, there has been a $12,000 capital loss from the unclaimed second hand plant and equipment

Because the property has been owned for two years, the owners are entitled to utilise the discount method to reduce this further $54,400 x 50% (discount) = $27,200

The property investor would be required to show a $27,200 net capital gain on their tax return.

WHAT HAPPENS IF YOU MAKE A CAPITAL LOSS?

If you end up with a capital loss after calculating costs and the sale proceeds, you cannot utilise that loss when submitting your annual tax return. But the ATO lets you carry the loss forward indefinitely to subtract from future capital gains.

Real Property Matters, as ATO compliant, registered Tax Agents, specialise in maximising your available tax deductions over the years of investment property ownership. We can help you to create a capital loss that reduces future capital gains tax.

***This is a simple overview of capital gains tax discussing one possible outcome and method. The information in this article is intended to be of a general nature only. It has been prepared without considering any person’s objectives, financial situation, or needs. Like always, Real Property Matters recommends you seek independent legal, financial, and taxation advice before acting on any information in this article.***

LOOKING FOR THAT EDGE TO FURNISH,

OR NOT?

ARE YOU LOOKING FOR AN EDGE WITH YOUR INVESTMENT PROPERTY?

As investors, we always need to maximise our return. Good property management should ensure that your rent is at the correct market value. But can improvements help get more out of the property?

Renovations, such as a coat of paint or upgrades to kitchens and bathrooms are always at the top of the list when we talk about traditional property improvements.

Could furniture be another consideration to improve your property performance?

The financial decision to furnish your property needs to be weighed up against positioning the investment to attract the best possible tenant for the maximum amount of rent, and your property manager is best equipped to answer that question.

But what does furnishing your property look like financially? New and second-hand furniture are treated differently by the ATO, and it’s something you should be aware of.

To gain an immediate return on your furniture package, it should be purchased and installed as new. While the initial cost may be higher, you can start claiming deductions through depreciation once the items are installed. You can claim these deductions annually as part of your depreciation claim.

On the other hand, the initial outlay to furnish a property with second-hand furniture will be less.

However, the depreciation loss on these items is not claimed annually. The depreciation amounts are accumulated in a separate pool. This total loss can then be utilised to offset any capital gain when you eventually sell the property.

Refer to our capital gains article to see how the depreciation of these items forms part of the capital loss to reduce your capital gain.

**In simple terms, if you would like to claim the expense of the furniture immediately, it must be bought and installed as new**

SO HOW DOES THIS NEW FURNITURE LOOK FINANCIALLY AND HOW DOES IT AFFECT YOUR TAX DEPRECIATION SCHEDULE?

In the above table, the total value of all new furniture is $11,685. This means a total depreciation claim of $3,264 in the first financial year, $1,945 in the second year and $1,748 in the third.

To maximise your claim with the furniture, we separate each item and individually list it in your schedule. You can claim items valued at $300 or less as an immediate deduction. Items valued between $301 and $1000 will depreciate at 18.75% in the first year and at 37.5% in subsequent years.

If your new furniture package was purchased for $25,000, it could return approximately $6,675 in depreciation claim in the first year. Over the first three years, you could recoup back a total of $14,225 (57% of the initial purchase price) as a tax deduction.

In summary, furnishing the property may provide an advantage in attracting the most desirable tenant and increasing your expected return on the property. However, this is a question best answered by your property professional. From a depreciation perspective, approximately 57% of the purchase cost can be claimed back after the first three years if the furniture is bought and installed as new.

KEEPING COMPLIANT:

THE MUST-HAVE CHECKLIST AT TAX TIME

REAL PROPERTY WORKSHEET

THE FOLLOWING WORKSHEET WILL ASSIST YOU IN CALCULATING YOUR INVESTMENT PROPERTY’S NET RENTAL INCOME OR LOSS. WE TRUST YOU WILL FIND THIS WORKSHEET A BENEFICIAL TOOL IN ASSESSING THE NET RENTAL INCOME OR LOSS OF YOUR RENTAL PROPERTY.

Income

Other rental income

Rental income

Gross Income

Expenses

Advertising for Tenants

Body corporate fees and charges

Borrowing expenses

Capital works deductions

Cleaning

Council rates

Deductions for decline in value

Gardening / lawn mowing

Insurance

Interest on loan(s)

Land tax

Legal expenses

Pest control

Property agent fees / commission

Repairs and maintenance

Stationery, telephone and postage

Sundry rental expenses

Water charges

Total Expenses

Total

Net rental loss

INDIVIDUAL INCOME CHECKLIST

Don’t forget about your individual income deductions. The following is a simple checklist outlining some of the major income streams and the deductions that you may be entitled to.

INCOME FOR THE PERIOD 1 JULY 2023 TO 30 JUNE 2024

EMPLOYMENT INCOME

�� Copy of payment summaries (formerly called group certificates)

OTHER INCOME

�� Statements of ETP (Employment Termination Payments)

�� Any letters received from Centrelink with details of family tax incentives/benefits, parenting allowance, family allowance

�� Any other income including insurance payouts

INVESTMENT INCOME (INTEREST, SHARES & MANAGED TRUSTS)

�� Dividend statements for any dividends received during the year, including dividends which are reinvested into shares

�� Statement from employer regarding employee share plans.

�� Purchase contracts for shares purchased

�� Sale contracts for shares sold

�� Details of any changes to your shareholdings (ie. demergers and takeovers)

�� Managed investment details (including annual tax statement)

�� Any interest earned on bank accounts, term deposits etc.

Generally, if you need to spend money to earn income, you can usually claim it (as an immediate deduction, or over time).

EXPENDITURE FOR THE PERIOD 1 JULY 2023 TO 30 JUNE 2024

EMPLOYMENT EXPENDITURE

�� Asset purchases for equipment used relating to work (tools of trade, etc)

�� Repairs and maintenance of equipment

�� Subscriptions for memberships to professional associations or unions

�� Travel and cost of seminars, conferences or other work-related courses

�� Protective clothing or uniforms

�� Stationery, printing, photocopying, etc

�� Computer, laptop, printer and other home office expenses

�� Reference journals, books, professional magazines

�� Telephone, internet and fax expenses

�� Donations to deductible gift recipients over $2 (e.g. school building fund)

�� Income protection insurance

�� Tax agent and financial planning fees

�� Any other work-related expenses

MOTOR VEHICLE EXPENSES (CAN ONLY CLAIM BUSINESS USE %)

Motor vehicle expenses can only be claimed when the motor vehicle is required to be used to carry out your employment duties. Travelling from home to work and work to home is generally classified as private travel. There are several options available when claiming for motor vehicle expenses:

• Logbook method

• 5,000km claim

• 12% of cost (purchase price)

• 1/3 of total expenses

If claiming under either the logbook method or 1/3 of total expenses, you will require the following:

�� Fuel costs

�� Repairs and maintenance to motor vehicle

�� Insurance and registration of vehicle

�� Lease payments or interest on loan for purchase of motor vehicle

�� Log Book (required to be maintained for a 12 week period)

�� Estimate of business related kilometres travelled during the year

INVESTMENT EXPENSES

�� Interest paid on borrowings in relation to investments

�� Any other expenses relating to investment activities

OTHER ITEMS FOR THE PERIOD 1 JULY 2023 TO 30 JUNE 2024

�� Private health insurance details

�� Details of any personal superannuation contributions made including letter from super fund acknowledging contribution

�� Dependent children details, including full names and date of births

�� Interest charged by the ATO for late payment of taxes and penalties

LODGEMENT DATES

31 October 2024

Individuals who have not engaged the services of a tax agent have until 31 October 2024 to lodge their 23-24 tax return.

31 January 2025

Large and medium trusts with a total annual income exceeding $10 million must lodge by 31 January 2025.

28 February 2025

Extended deadline for large and medium trusts with a total annual income exceeding $10 million.

15 May 2025

Individuals, partnerships and trusts that engage the services of a tax agent have until 15 May 2025 to lodge their 23-24 tax returns. Trusts not required to lodge by the earlier deadlines must do so by 15 May 2025.

*These dates are provided as guidance only and may be subject to change. It is advised to confirm your specific lodgement dates with your tax agent, or the ATO.