Welcome to this month’s edition of the Dot Monthly!
Over the last month, I trust you enjoyed the Easter long weekend with friends and family. The
federal election is looming, and things are starting to intensify as both parties are doing what they
can to win voters over. If elected, Labor proposes to limit negative gearing to new housing only. This
means that investors can only deduct net rental losses from newly constructed properties from their
Labor has stated that under the plan, all investments made before the changes come into effect will
be fully grandfathered. This means investors who purchase existing properties before the
commencement date will still be able to claim losses against wage income.
Although losses from existing properties can’t be deducted from wage income, losses can still be
offset against other investment income such as share dividends, or carried forward to offset the
capital gain on the property when it is sold.
This means that investors will still be able to claim losses from rental properties, but not necessarily
in the financial year that the losses were incurred. However, this will make it more expensive for an
investor to hold a loss-making property in the short term, as investors can expect lower cash flow
when purchasing a negatively geared property.
The coalition will leave things as is, which makes more sense. As the phrase suggests, If it’s not
broken, don’t fix it.
Let’s get into this month’s other topics –
– Australia now has 2,156,319 property investors
– Coffee, Afterpay purchases could all count against your chances
The table below is a snapshot of the current property investor pool in Australia –
|Tax year 2016-17||Tax year 2015-16|
|Six or more||20,357||20,017|
According to ATO statistics a steady 71 per cent of the Australians with rental properties have just the one investment. Most of these investors rely on tax concessions such as negative gearing to assist in building a modest nest egg for the retirement. Quite far from the contrary belief all investors are gaming the tax system as suggested by Bill Shorten.
Coffee, Afterpay purchases could all count against your chances of getting a bank loan
Banks and credit unions are closely following the daily spending habits of potential customers — purchases using Afterpay, food deliveries, daily splurges and entertainment are all being put under the microscope.
This scrutiny on borrowing heightened especially amid the fallout of the banking royal commission. It’s the hardest it’s been in the past 15 years — even harder than when the global financial crisis was around.
Most lenders would look closely at your previous three months of spending when you applied for a loan.
Recommendations when preparing for a loan submission –
- – Do your research and talk to us at dot — you really can’t have enough information about this at the moment.
- – Check what you’re spending on Afterpay or Zip and have those things paid off or cancel the account.
- – If you have credit cards sitting around, reduce the limits on the card or cancel it all together. Lenders assume you’re going to draw down on that card and apply a repayment on it which will affect your borrowing capacity.
- – Watch your spending in the three months prior to applying for a loan.
A real finance tip that you can actually use?
Interest in advance as the new financial year is looming(prepayment of interest on your investment loans) – For those investors out there, if you are planning an extended holiday knowing your income will be reduced next year, it may make sense to prepay the interest on your investment loan, so you can claim 2 financial years’ worth of interest in the one. Speak to your accountant as they will be the best person to advise whether this is for you.
What has Dot been up to for the month?
Don’t forget to read up on the 15 year itch which is an E book I’ve authored to equip you with strategies to pay off your mortgage in under 15 years. The e book is available on the website or you can get in touch via email to request a complimentary copy.
As always, we hope you enjoyed reading the blog and should you have any questions, please feel free to email Connecting@dotfinancial.com.au or you can call us on 1300 000 DOT (368).