Tax Strategies to Benefit Borrowers

Mortgage holders can still save money before the end of the financial year by implementing tax strategies.

One of the best ways to get ahead is to legitimately maximise your eligible tax deductions before June 30.

Senior corporate affairs manager for Mortgage Choice Kristy Sheppard says mid year is the time borrowers, or those looking to buy property, should look to use any tax savings to reduce debt or increase their borrowing power.

“For example, investors can make a number of taxable deductions for rental property expenses including but not limited to advertising costs, agent fees, body corporate fees, council rates, gardening, pest control, repairs and maintenance, water charges, bank charges and even loan interest.” “Here lies the attraction to negative gearing, where the combination of annual interest repayments plus the deductible expenses is higher than the annual rent received from tenants of the property.”

“So, the property upkeep and loan costs such as interest are allowed to be deducted from your total income and you are taxed only on that reduced income amount.”
“Obviously, the higher the income you earn the more you will benefit.” “The more money you borrow to pay off a property, the more interest you will pay, usually, and therefore potentially the bigger the tax deduction you may receive.”

Sheppard points out that you can also improve your tax return by claiming work or lifestyle related expenses, as well as the cost of consulting a tax professional.
For investors looking to improve their borrowing power, Sheppard says it’s a good idea to put your tax return in an account to show you have savings and can build up a five to 10 per cent deposit, as is now required by the bank.

“Alternatively, potential borrowers could use it to pay off other debts with a higher interest rate, so they have less debt when the time comes to apply for a mortgage.”
Another way to use your tax return in your favour is to invest a lump sum payment into a loan, which for rental property owners may be deductible in next year’s assessment, according to Sheppard.

“If a borrower contributes a lump sum payment of $500 into the average mortgage, which is approximately $350,000 at 5.84 per cent per year, they will save around $2368 in interest on the total loan amount plus one month off a 30-year loan term,” she says. “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 $23,893 in interest plus 18 months off the loan term.” Sheppard emphasises the importance of clearing debt for property owners. “Those paying off a mortgage need to utilise every opportunity to minimise their outgoings and tax time certainly presents some interesting options,” she says.

Source: Australian Property Investor Website Posted on Tuesday, June 16 2009 at 11:49 PM