Finance and Marketing

Archive for August, 2009

Real estate is one of my absolute favorite areas in the tax law. Why? Because there is so much flexibility in how to do things in order to legally maximize the tax benefits available.

Did You Know You Can Receive Rental Income Tax-Free?

Of course, there are specific rules behind this permanent tax saving strategy. I find that after I go through the rules with my clients, we usually find a way to use this strategy – legally – and it creates another stream of permanent tax savings. Plus, this strategy can be used every year so these are annual permanent tax savings!

General Rule

The rule is applied most often to vacation homes. The rule prevents taxpayers from deducting large expenses as rental real estate expenses for maintaining their vacation home.

The rule states that if you rent your property for 14 days or less per year, then the expenses that are not otherwise deductible are considered personal non-deductible expenses. This means no deduction for utilities, insurance, maintenance or similar expenses. It also means no depreciation deduction.

On the flip side, however, the rental income received is tax-free.

The reasoning behind this rule is that If the expenses were allowed to be deducted, it would likely lead to a large loss because these expenses (even pro-rated for the rental period) typically outweigh the rental income. So, the rule takes a conservative approach by making the expenses non-deductible and the income non-taxable.

Ways to Apply this Strategy

While the rule is most often used in the situation of vacation homes to prevent taxpayers from claiming rental losses on a property rented 14 days or less per year, it can be applied to any property – including your residence!

You’ve probably heard of people renting their home for a week to out-of-town visitors coming into town for big sports and entertainment venues. As long as the total days rented doesn’t exceed 14, the rental income they receive is tax-free.

Now, some of us may not be too excited to rent our home to strangers, but perhaps there are people (or even companies) we know who may want to rent our homes for a short period of time.

There are many things you need to know before applying for a home loan or for land financing. You can approach your local bank or any one of the many lending institutions available. This form of financing is great, as it prevents your money from being stuck until you can make enough to pay back the loan amount.

Home Loans

Home loans are required to finance the purchase of a residential property. There are certain criteria that need to be complied with to be eligible for a home loan:

• You have to be an Australian citizen or a permanent resident returning to Australia.

• A migrant or an employee on an Employer Sponsored Visa (temporary or permanent; most subclasses can apply).

• A migrant on a Permanent Skilled, Skilled Independent or a Skilled Independent Regional (Provisional) Visa (most subclasses).

• A non-resident of Australia can also apply if they want to invest in Australian real estate. You have to have an ongoing income from employment, investments/rental property or have other sources of income.

• If you are an investor, have Business Skill or a Talent Visa (most subclasses), then you can apply for a home loan.

• If you have a business in your country of origin or in Australia for the past two years, you are eligible.

The above listed criteria is only to check whether you are eligible for a home loan or not. If you are, then you will need to fill in the application form provided by the financial institute of your choice. Every institute has its own terms and conditions, which should be all right with you. Once you agree and fill out the form and submit it, the company will then consider your application. If it is approved, only then will you get the first disbursement of the loan.

Land Financing

Land financing is required by construction companies and landowners. There are two types of land financing available; let’s discuss these in detail: