Buying a property as a sole trader comes with inherent risks as the property is bought and sold in your name. This leaves the properties and other businesses, or personal assets owned by a sole trader at risk, if anything goes wrong. On the other hand, if you are a sole trader who owns investment properties you have liberties when it comes to tax. In this article we will explore the investment property tax tips you must know if you are a sole trader focused on investment properties, or with another business too.
At Taggart & Partners we specialise in SME accounting with a thorough and up-to-date understanding of the ever-changing tax codes. We are here to consult with you on property investments and the related tax associated for sole traders. Contact us today by calling 07 3391 1188 or reach out via our online form.
Investment Property Tax Tips for Sole Traders Focused on Property Investment
Leverage Negative Gearing
As a sole trader who has invested in rental properties, negative gearing will be your best friend come tax time. Negative gearing is where the income for the property is less than the expenses. The losses made from negatively geared property can offset other taxable incomes, lowering your tax liability.
Depreciation Claims
Knowing what depreciation claims you can make and how to do so will give you an edge come tax season. Depreciation can be claimed on capital works and assets like appliances or carpet. These are written off over an extended period as depreciating assets. Getting a depreciating schedule from a qualified quantity surveyor can make sure that you are claiming all available deductions.
Capital Gains Tax Management
If you are looking to sell an investment property, it’s important to understand the capital gains tax rules. For properties held for over 12 months you can apply a 50% capital gains tax discount, reducing taxable gains by 50% when you sell. It is crucial to plan your sales strategically and get the timing right, so you win at tax time.
Record Keeping
For effective real estate investment tax planning you must keep records of all property-related expenses to set yourself up for success when July rolls around. You should have a record kept of things like loan interest, maintenance costs, and insurance. This is an area that the ATO monitors closely so proper documentation is a must.
Investment Property Tax Tips for Sole Trader with Another Business
Separate Business and Investment Finances
If you have a business that you are wholly responsible for and also invest in property, it is important to keep the two separate. Any property investment activities should be financially distinct from your primary business for simplified record keeping and clarity in your real estate investment tax planning.
Diversify Your Risk
When you decide to get into the investment property market you will want to avoid an over-reliance on property investments. It is smart to diversify your portfolio and balance the risk between your business and property. An over reliance on one or the other can have implications at tax time if cashflow is affected.
Time Management
Property investment can end up taking up a lot of your time, which can be challenging if you are running a business. This becomes especially true if you are managing tenants or renovations on the property. Outsourcing property management is a great choice and deductions on these fees are available when they are necessary and related to the management of your rental property.
Understand Both Property Investment and Small Business Tax
The best tip we can offer is to equip yourself with the knowledge that will help you. In this case it is learning the intricacies of both property and small business tax and how the two interact with each other. By learning these you can maximise your deductions and offsets. If time does not allow, you can always reach out to the professionals.
Contact Taggart & Partners Today
Taxes for sole traders and property investment can be complicated, and properly navigating the tax code is often a challenge – professional assistance makes the difference. At Taggart & Partners you can speak to a business tax accountant about ways you can save money and be better prepared for tax season. Get started by calling 07 3391 1188 or reach out to us via the online form.