Avoiding 12 Costly Tax Mistakes Australian Investors Often Make.
Article by Shaun from TaxProActive.
In Australia, the majority of individuals rely on tax agents and accountants who only see their role as the expert to facilitate the lodgement of your tax obligations. As a result, tax agents & accountants mainly focus on a financial year that is already a distant memory.
Generally tax agents & accountants are not known for being innovative or having a proactive approach. This often unfortunately leads to Australian Investors making decisions that are not fully aligned with their best interests, and potentially causing them to miss out on thousands of dollars of tax deductions year after year. The cornerstone of achieving financial success lies in education – it’s about equipping yourself with the knowledge to initiate meaningful changes that enhance your financial standing. At Tax ProActive, we’re committed to kickstarting this educational journey.
This Australian Investor’s Tax Guide is designed to steer you clear of the common tax pitfalls that trap many Australians, setting you on a path to smarter, more informed structuring and investing. By doing so we hope we highlight to you the importance of having a ProActive team to guide you through your investing journey. Time is of the essences. So let’s get started. Part 1: “But It’s Secured Against The Investment Property!” Having spent over two and a half decades advising Australians in my capacities as a lawyer or tax accountant, I’ve encountered numerous misunderstandings regarding the application of laws. A personal annoyance of mine is the often-heard statement, “my friend’s accountant does X, and they said it’s fine.” This usually involves accountants prompting clients to claim non-deductible expenses, leading the clients to believe they are somehow protected because their accountant advised them so.
However, this belief is misplaced. Tax filings are based on self-assessment, and taxpayers are responsible for their claims, emphasizing the importance of seeking accurate advice rather than relying on questionable sources. It’s crucial to understand that if the Australian Taxation Office (ATO) imposes fines or penalties for incorrect claims, the excuse “my accountant said it was fine” will not hold. Therefore, it’s vital to claim only what you’re legally entitled to. Conversely, many Investors fail to fully utilize their tax claims due to their or their accountants’ lack of understanding in Investments such as; * crypto currency, including specialised areas such as mining and staking, * foreign investments income, * NANE income, * exchange traded funds, And many more… The accountant really doesn’t understand nor has experience either personally or on a professional level, so they have limited knowledge on how to maximise your return. Shockingly, many accountants lack a comprehensive understanding of how to fully leverage tax deductions for Australia’s preferred investment category, residential property investment. Common oversights include; * Not having a full depreciation schedule of the capital works, plant and equipment and low value pool obtained from a qualified quantity surveyor, specifically for your investment, or * Not claiming all the borrowing costs associated with your investment loan over several years, or * Not knowing which jurisdictions in Australia where Stamp Duty is tax deductible. However, the most significant oversight I’ve observed, as a specialist in investment property taxation, is the misunderstanding surrounding loan deductibility and how to optimize it. Both accountants and investors often misinterpret when loans are deductible and how to maximize or jeopardize their loan’s deductibility.
A fundamental misunderstanding is the nature of loan deductibility and its relationship to the security used. It’s crucial to grasp that the security for obtaining a loan is irrelevant; what matters is how the loan proceeds are utilized. For instance, using equity from an investment property to finance a personal holiday does not make the loan interest deductible, despite the investment property being used as security. While you may think , “well this is obvious” what I have seen over and over is people using equity from an Investment property to fund their deposit for a new home purchase (their principle place of residency) and assuming or being advised that this loan is tax deductible .
Proper advice on loan structuring could prevent such misconceptions, enabling a more advantageous financial setup. Even mortgage brokers, who you would think should be loan structure experts are giving the wrong advice. What should have been undertaken by the Investor in order to minimise the Investor’s non deductible loan for their home (principal place of residency), was when the original loan facility for the investment property was made, it should have had a corresponding Offset Account. More details and real life examples of the use of an Offset Account to maximise tax deductibility will be discussed in Part 2 of this Tax Guide. So …. It is clear that you need to make sure you have the right team of experts, including mortgage brokers, financial planners, lawyers, property advisors, tax agents and accountants in your corner who know what to do to help you maximise your overall benefit. While this example highlights frequent mistakes, there are many other pitfalls that investors encounter. I aim to share these errors and missteps through the monthly series, “The Australian Investor’s Tax Guide: Avoiding 12 Costly Tax Mistakes Australian Investors Often Make. Do You?”
If you’re looking to enhance your financial future, obtain accurate advice, create income streams for your family, and implement strategies to achieve the lifestyle you desire, I encourage you to reach out to Tax ProActive on +61 422 252 311 or visit our website at https://www.taxproactive.com.au.
Looking forward to our future discussions.
Best regards, Shaun
