How might Covid affect my finances in 2021?
Covid-19 has caused unprecedented financial and mobility issues that will have lasting effects. For Australian property investors, things are slightly better thanks to the quick decisions and support from the Australian government. For 2021, the outlook in Australia is increasingly optimistic. However, property owners still need to consider the financial and tax implications of their investment. Here are some considerations:
Covid Tenant Issues and Rent Reviews
The Australian federal and state governments moved to offer loan repayment deferrals for anyone impacted by the pandemic. If your rent or earnings are affected by Covid, opt to defer repayments for up to six months. You will still have interest accrued, but short term cash flow will be more manageable.
Tenants can request to reduce or defer rents (at the discretion of the landlord). Importantly, there’s an eviction freeze on tenancies, so landlords are not allowed to evict a tenant until (most likely) March 31, 2021.
Attention to Land Tax
Many Australian property owners are not fully aware of their State Land Tax obligations. In recent times, these costs have increased for owners who are not Australian citizens or Permanent Resident visa holders. Each state, however, does not charge taxes on your property of residence and also offers tax-free allowance on investment property. But once you start owning two or more properties, the rates can quickly escalate.
Check Your Interest Rate
A silver lining of the Covid economic impact is that the Australian Official Rate is now the lowest it has ever been. Fixed rates are particularly attractive.
In addition, banks are offering lower rates for Principal reduction loans, so that, too, may be worth considering given that the new lower rate – including a principal repayment – is likely lower than your previous interest-only cost.
Superannuation as Tax Alternative
Another by-product of lower interest rates is lower tax claims. Many landlords may find themselves moving into a tax payable situation on their rental income. You may want to consider making a tax deductible contribution to an Australian Superannuation fund (maximum AUD$25,000 per person).
Time for (Major) Improvement
You can also reduce your tax by doing maintenance or renovations. This can triple the benefits of tax reductions, rent increase and value improvement. With interest rates so low, it may be prudent to increase your loan to fund these improvements, letting future increased rent cover the extra interest cost of tax.
“For 2021, the outlook in Australia is increasingly optimistic.” – Steve Douglas
Steve Douglas is the Co-Founder and Managing Director of Australasian Taxation Services (ATS). ATS provides specialist taxation services for anyone looking to invest in Australian property, including Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.
From The Finder (Issue 305), June 2019 / Willaine G. Tan, December 2020.
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