How Australians Can Pay ZERO Taxes Legally? Australian Real Estate | Property Investing Australia

Summary

This video features Nick Hill discussing strategies for making tax-free income from property investment in Australia. He covers the six-year main residence exemption, the potential tax benefits of shifting your home to an investment property, and the importance of structuring your portfolio correctly. Hill also addresses depreciation, deductions, and the tax implications of renting out a property before moving in. He emphasizes the value of consulting with an accountant before purchasing an investment property to maximize tax benefits and avoid future complications.

Takeaways

• 🏠 The 'main residence exemption' is a significant tax incentive in Australia, allowing homeowners to sell their property tax-free on capital gains if it was their primary residence.
• 🔄 There's a 'six-year main residence exemption' rule which allows homeowners to shift their main residence to an investment property and sell it within six years without paying tax on the capital gain.
• ⚠️ If another property is declared as the main residence during the six-year period, the tax exemption can be lost, emphasizing the importance of careful planning.
• 🌊 An example scenario is provided where shifting a home in Brisbane to an investment property while living in Sunshine Coast can be a tax-effective strategy if done correctly.
• 💰 The script suggests that there's a potential for making tax-free income through property investment, which is a significant loophole in the Australian tax system.
• 📈 For those not fitting the 'six-year exemption' scenario, getting a property valuation when shifting main residences can help lock in increased value, reducing future capital gains tax.
• 🏡 The discussion highlights the importance of proving intent to live in a property to claim tax benefits, especially when circumstances force an early move.
• 🔩 Depreciation is a key strategy for property investors to reduce taxable income, with different rules for depreciating furniture and the property's structure itself.
• 💼 Consulting an accountant before purchasing an investment property is crucial for structuring the investment correctly to maximize tax benefits and minimize liabilities.
• ⏳ The script warns against common pitfalls like incorrectly claiming travel expenses to rental properties, which are no longer deductible, and the importance of being aware of current tax laws.

Q & A

What is one of the biggest loopholes for making tax-free income in Australia?

One of the biggest loopholes for making tax-free income in Australia is utilizing the main residence exemption rule, which allows individuals to sell their property without paying tax on the gain if they have lived in it as their main residence.

What is the six-year main residence exemption rule?

The six-year main residence exemption rule allows individuals who shift their main residence to an investment property to sell it within a six-year period after the transition and still pay no tax on the sale, provided they do not declare another main residence during this period.

Why is it important to move into a property immediately after purchase if intending to claim it as a main residence for tax purposes?

Moving into a property immediately after purchase is important because if the property is rented out before the owner moves in, it can disqualify the property from being considered a main residence for tax exemption purposes, even if the rental period is short.

How can a valuation of a property help in minimizing capital gains tax when shifting from a main residence to an investment property?

A valuation of a property at the time of shifting from a main residence to an investment property can help lock in the increased value at that point, which increases the cost base and minimizes the capital gains tax liability when the property is eventually sold.

What are the two types of depreciation that can be claimed on an investment property?

The two types of depreciation that can be claimed on an investment property are standard depreciation, which applies to items like furniture and appliances, and capital works deduction, which applies to the depreciation of the physical property itself, such as the house structure.

Why is a quantity surveyor's report necessary for claiming depreciation on an investment property?

A quantity surveyor's report is necessary for claiming depreciation on an investment property because it provides a detailed assessment of the assets in the property and their effective lives, which the Australian Tax Office (ATO) requires to determine what can be claimed as a deduction.

What are some common expenses that can be claimed as deductions on a rental property?

Common expenses that can be claimed as deductions on a rental property include interest on the home loan, council rates, body corporate fees, insurance, bank fees, water rates, and utilities. Additionally, repairs can be deductible, but care must be taken to distinguish between repairs and renovations for tax purposes.

Why is it important to consider the structure of ownership when purchasing an investment property?

The structure of ownership is important because it can significantly impact tax liabilities. For example, placing a positively geared property in the name of a spouse with a lower tax rate can reduce tax payable, while placing a negatively geared property in the name of a higher-income spouse can maximize tax deductions.

How can the timing of moving out of a main residence affect its tax-free status when sold?

The timing of moving out of a main residence can affect its tax-free status because if the property is rented out or vacant before the owner moves back in, it may no longer qualify for the main residence exemption, potentially leading to tax liabilities on the capital gain when the property is sold.

What are the implications of buying a property off the plan and then moving out shortly after settlement for tax purposes?

Buying a property off the plan and moving out shortly after settlement can result in a large capital gain being tax-free if the property was used as a main residence for at least six months. However, if the property was rented out before the owner moved in, that period may be taxable, and the tax implications should be carefully considered.