More ‘Play Money’ For Grey Nomads
While there could be a number of reasons to turn a home into an investment property - such as relocating for work, extended overseas travel or for financial gains - for Australia's growing number of grey nomads such a move could provide the funding for the trip of a lifetime.
As baby boomers reach retirement age, many are taking off for their long dreamed of trip around Australia. It was estimated that of the 17,000 caravans sold in 2008, 80 percent were purchased by those over 50.
Setting off without a care in the world doesn't come for free, and renting out a primary place of residence could help to fund the long awaited tour.
Turning a principal place of residence (PPR) into an income-producing property creates a different scenario for the owner's tax situation; expenses in holding the property like interest costs, rates and management fees will become tax deductible making owning the property more affordable. The rent also becomes assessable income.
It is for this reason that carrying out a Tax Depreciation Report before taking off will help ensure any potential claims are carried out.
Brad Beer, Director of BMT Tax Depreciation says, "Another tax deduction available for the owner while the property is income-producing is depreciation on the fixtures and fittings, and the capital allowance on the structure of the property if it was built within qualifying dates".
A Tax Depreciation Report determines the exact number of days a property was rented in the first financial year as an investment property. This gives the accountant an exact total deduction available for the partial year. The report will also include any capital improvements that were made, even if they were completed while the property was a PPR. There are still potential claims for these items when the property becomes an investment.
Implications for capital gain include that while a PPR is exempt from CG tax, if a home is changed to an investment property some CGT may be triggered if the property is eventually sold.