PRACTICAL HOUSEHOLD SAVINGS

All new clients are eligible for a free non-obligation 30 min consultation.
Call us now and let us help you reduce your tax or make your business more cost-effective.

TAKE ADVANTAGE OF OUR FREE PRACTICAL HOUSEHOLD SAVINGS GUIDE

Save money without changing your life style. It is surprising how a few small changes can boost your savings! Here are a few tips.

Subscribe to Unlock

Loading…

Tax related savings (consult with an Accountant or Financial Planner for more details)

  • Claim missed deductions: Do you know that one third of Australians are under claiming their tax returns and the missed deductions could be up to 1 billion? Make sure you find a Tax Accountant to help you to claim every dollar you’re entitled to.
  • Build a better tax structure to save tax. A good tax structure could save you up to thousands of dollars every year. Talk to your Tax Accountant or Financial Advisor to see how you can achieve this.

 

Save on mortgages and finance:

  • Shop around for a better rate. Try not be limited by one choice. Shop around and compare the best deals. Be careful with the hidden rates such as admin fees. Take them into account when you make comparisons.
  • Try to pay a bit more on regular basis if you can. For a $500k loan, if you can pay$100 more per month, you can save close to $40K interest over the term of the mortgage.
  • Make use of an offset account. Set up an offset account and deposit your salary to the same account. It will start saving money for you from the minute the money is in there. If you don’t have an offset account, pay your mortgage as early and as frequently as you can.
  • Have a budget and a target. As an example, you can set a target as: I need to save$15,000 in a year so that I can travel to Europe. 65% of Australians are confident that they can achieve their saving goals. Once it becomes habit it’s not that hard.
  • Make a saving plan according to your budget and stick to it. You can use the budget and saving tools on our website. Track your expenses on at least a weekly basis.

 

Household savings:

  • Use non-essential electric appliances at off peak times. Dry your laundry on the washing line whenever possible. It’s old fashioned! But it does help saving your energy bill.
  • Use energy efficient home appliances, including light bulbs. These can really make a difference to your budget.
  • Consider getting private health insurance if you’re paying a lot of medical expenses. It will save your tax on the Medicare levy surcharge if you are a higher income earner.

Good luck with your saving!

Declaration: The Excel files and content of this website have been prepared without taking into account your personal financial situation or knowledge of your financial needs. Impact Taxation and Financial Services cannot be liable for any losses or damages arising from using the information provided. It is the user’s responsibility to seek independent advice from a professional accountant before implementing any financial plan.

10 things you should consider before buying a property

Are you considering buying a property? Do you know you could miss opportunities to save thousands, or tens of thousands of dollars if you don’t plan well before the purchase?

Below are a few key considerations:

1. How should you set up your loan structure? If you don’t have a loan offset account for a rental property, after you make extra payments directly to the loan account, you can only claim interest deduction on the remaining balance of the loan. For tax purposes, this deductible balance can’t be changed even if you redraw the overpaid amount later. A good loan structure could also help you to stabilize interest rate and speed up loan repayment by combining a standard variable loan (with an offset account) and a fix rates account.

2. Timing of renovation. You might want to do a renovation right after you have bought the rental property. But do you know for any genuine repair & maintenance included in the renovation, you can claim an outright deduction against the rental income when the property is available for rental? If the work is done before the date when the property is available for rental, you can only claim the deduction against future capital gain when the property is sold. Depend on when you are going to sell, it could take years or up to decades before you can claim the deduction.

3. How should you split ownership? You might want to share the property ownership with a family member. For tax purposes, the percentage of ownership is based on the legal title, regardless of who is paying more on the mortgage. If the property will give you a tax profit, you might want to allocate more
ownership to the low-income earner to utilize the lower marginal tax rate. If it is giving you a tax loss, you might want to allocate more ownership to the high-income earner to utilize the loss. The goal is for the family to pay minimum tax together.

4. Should you use a family trust to purchase the property? There are many pros and cons related to a family trust. The advantages include tax savings on rental profit or capital gain, asset protection and succession planning on family wealth. However, family trust can’t distribute losses. All losses are trapped in the trust to be used to offset future trust profit. Therefore, you can’t utilize any rental loss in a trust to offset other income such as salary & wages. Family trusts also attract high accounting fees on initial setup and annual fees on financial statements and tax returns. State governments also charge much higher land tax on family trusts.

5. Will the income level change in future years for different owners? You might want to forecast the possible income for different owners to understand total tax payment / savings related to the property. This could also impact on your decision making on point 3 and 4 above.

6. Understand when you can treat your property as main residence to receive an exemption on capital gains tax. When eligible, even if you have received rental income, you could still treat your rental property as main residence and receive the exemption. To be eligible, you will need to treat it as your main residence at the beginning. Please check out this ATO link: Treating former home as main residence.

7. Decide whether you need to purchase a depreciation report. Most taxpayers don’t know that the depreciation on the building will need to be added back to calculate capital gains tax when the property is sold. When the property is held for more than 12 months, after applying the capital gains tax discount of 50%, it will effectively cut the tax rate by half at the time of sales. This makes depreciation deductions desirable for high income earners. However, for low-income earners it might not be ideal to claim depreciation as a rental deduction since they could be paying more on capital gains tax in the future. It could get more complicated if the property is under joint ownership between high and low income earners.

8. You might want to consider Centrelink payments for future or existing owners. Most Centrelink payments are income and asset tested. Before attaching a rental property to a family member who is receiving, or plan to receive government benefits, you might want to check the testing thresholds first to see if the Centrelink payment will be impacted. This is also applicable when you are making distributions from a family trust to different family members.

9. Have you considered using your SMSF (selfmanaged super fund) to make the purchase of a rental property? There are a lot of tax saving opportunities with a SMSF since the income tax rate is only 15%. And the capital gains tax rate is effectively only 10% after factoring in the 1/3 discount. The major downside with a SMSF is normally you can’t get the money out until you retire or on compassionate grounds (SMSF does have more flexibilities compared to normal retail super fund. But the choices are still very limited). It could be expensive to set up and operate a SMSF too. There are also strict legal requirements on the trustees. Penalties on incompliance could be severe. Tax law around SMSF is very complicated too. You will need to find a good tax accountant specialized in SMSF to help you to understand the structure, also do a cost-benefit analysis before setting it up.

10. Consider internal ownership changes. For your existing rental properties, you can also consider whether you should transfer the ownership between family members, or between different business structures (this is not applicable for SMSF). You might want to do this when the income level changes with family members, or rental property changes between tax profit and loss. Before the change, you need to consider the cost of transfer including capital gains tax, stamp duty, conveyancer fees, etc. Again, a cost-benefit analysis is a must before the change.

Last but not the least, did you combine all the above strategies and compare your choices? If you haven’t yet, how would you know that you have picked the best strategy to minimize your taxes? We can help you to factor in all considerations, compare different scenarios, also present you with a Property Prepurchase Report with all our findings to help you to make a decision. Contact us today to book in a consultation with an experienced tax accountant!

IMPORTANT INFORMATION
This is general advice only and does not consider your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.

Copyright © 2022 by Impact Taxation & Financial Services All Rights Reserved.