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The podcast series "Confessions of a Property Investor," hosted by Catherine Andrews, delves into various aspects of property investment in Australia. It aims to demystify the property market, offering insights and practical advice for both novice and experienced investors. The series covers a range of topics, including bank interest rates, property cycles, investment strategies, and market trends. It addresses common fears, misconceptions, and challenges faced by property investors, providing expert opinions and real-world examples. The hosts also discuss the impact of economic factors and lifestyle choices on property investment decisions. The series is designed to educate and empower investors by providing them with the knowledge and tools needed to navigate the Australian property market successfully.
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All right, welcome back to the next episode of Confessions of a Property Investor. Today, I've got a wonderful guest with me, Steven Lewandowski from Lewandowski Accounting Group.(...) Hi, how are you? - Okay, how you doing? - How are you? - Good. - Good. - Good, well, thank you for coming on. - That's all right. - Good. So Steven, I've known Steven for a while. Steven is the accountant for Chase Wealth Australia. He's also a personal accountant. And Steven also is the accountant for much 90% of the clients through Chase Wealth Australia. He has proven himself beyond any measures of his suitability to the cause. - Thank you. - I guess he loves property investment. - Correct. - And he keeps us in the right by park when it comes to the tax benefits and the, I guess the guidelines we're looking in for property investing.
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So today, I think it's gonna be a reality check for our listeners and viewers on what truly are the benefits of tax benefits to property investing.
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So Steve, you know, I guess where we'd start off is that a lot of our clients that come in,
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they don't, they know basically like, you know, generally that they can deduct things on tax and they've heard through a friend of a friend that, "Oh, that's not what's all tax deductible. You can deduct this, you can deduct that."
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I'm not an accountant. I'm not a tax expert.
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When it comes to those sort of questions with your consultation, I'm at a loss at times. I give them general rule view, but I really don't know the ins and outs like you do.(...) And I guess what we need is from you is the reality of tax benefits, what, you know, there's questions that I get like, "Should I get an old property?" An altering new property. You know, do you wanna shed some light on us? - Yeah, look for sure. I mean, I've been doing it for a long time, like you said. And as I guess I always say to you is that it's better you get those questions to come to me instead of going through you because this is what I do every day. I don't do what you do. I don't fix my own car. I do tax and we do it in new properties. I've got six myself. So I know what properties are like to have them and what you can claim.
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And I think having an accountant, it's a good idea to have an accountant. You don't have to have one. You can't do it yourself.(...) But it's just to know what you can claim and probably more importantly, what you can't claim. Because some people claim things they shouldn't be claiming.(...) Tax obviously is right on top of properties at the moment. So it's better to just get it right.
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Exactly. But if you get it right, it's nothing to worry about.(...) And you just claim what you can claim and that's it. It's just knowing what you can claim. And I guess, Steven, you tend to be as informative as possible with our clients. But it's really hard to stay on top of everything because it's something that does sort of organically change year to year. Can you give our listeners and our viewers some insight on a couple of things that they would probably are. And I'm gonna be very vague here with some questions.
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I guess what it'd be, general public theory is most things, if not everything, is tax deductible related to property investments. What's the reality? What is it that you could think of that you probably couldn't claim?(...) To put it simply, is you have in the purchasing stage, a lot of those things aren't deductible in your tax return. They relate to your cost base. So you still wanna keep track of them. We still gotta record them all. But you're not getting a claim for them right now.(...) Although some things are, not a lot of things, but some things are. And that's again why having an account helps because you know what things can and what can't be claimed.
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After it's bought the property, then most things are deductible. Your rates, your water, your insurance, your body corporate, all those things are claimable.
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If you do renovations, we have to depreciate that. So it's not all claimable. If you do repairs, we've got to look at what kind of repair there is, that it is. But most things are interest on your loan, agents commission, all those kinds of things. Pests, inspections, yes. - Okay, good. And one thing for clarity as well, is I have a lot of clients, or I have had a lot of clients that are, that they say they've expended, you know, $70,000 worth of costs pertaining to the transactions that property purchase. They then they've been, they're gonna get the whole 70 back. And this is where I need, this is where you step in. - It's common and it's understanding. And I think that's where you can ask these questions after you bought the property and that's fine. I think during the process is probably a good idea. Just so you're aware of the outcomes or what it's gonna come out like afterwards.
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The other part that's important is because from a tax point of view, we can say these are our claims and this is what your negative gearing is gonna be. But what your income is, is also important. Because saying that you have rental income, for example, 30,000 for the year,(...) your deductions are 40,000 for the year, you've got a $10,000 loss. Now, if that loss is in your name and you've only earned $20,000 for the year, you're not getting a refund, because you don't pay any tax. You're not getting a refund. So, whereas if your income is 200,000 a year, then you will be getting a refund. So it does depend on your situation.(...) And that's also what's important to figure out what percentage do you put on the property? Do you go 50-50 on the property? Do you go 90% 10%? Do you put it all in one person's name?(...) When we're talking about individuals, it will make a difference as to what the current claims are now and also in the future for what the capital gains are gonna look like. - Is that sort of based on what they earn at the time of the transaction? - Generally speaking, it's what they're earning now, but I think you also need to look ahead a little bit because it depends on the age of the person. If they're getting close to retiring, then their earnings are gonna be different.
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If they're mid 30s, they've got a lot of years left of working, then you look at them and say, well, what's your incomes now? Do you think it's gonna change? And what percentage should you go with? And 50-50 a lot of time is fine. There's nothing wrong with that. But it depends. You might have one that's earning a lot more than the other one. It can be more beneficial right now to have a 90-10 split. You've just gotta be aware that in the future, the capital gains are gonna be different in the future as well. If you sell it while you're still working. So there's unknowns, there's things you may not know for sure, but it's just knowing what the options are. And I think that's why it's important to talk to someone about it in the beginning so you know what the outcomes are gonna look like. - I agree. I agree. I don't think that it can be a fully successful transaction
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or even a success in property pricing without an accountant. - I think so, yeah. - I think you're very much part of the park equation.(...) I'm iffy and a little bit 50-50 on planners, financial planners. I do think they're everything, but T's are probably more generalized, more than there's property. - It's more in shares.
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Again, generally speaking, you have advisors who do property and that's completely fine. And they will probably know the tax side of it and they probably have a tax licence and they'll probably be okay. - Yeah, yeah. - But you can research things and you can look online. And again, people that I know do their own tax and there's nothing wrong with that. - Yeah, of course. - As long as you're comfortable that you've got it all covered. - Yeah, well that's the thing. - And that's the thing. - I'm not. - Yeah, yeah. And a lot of people aren't. - Yeah, no. - No, and that's yeah. That's why you'd go see one. - Well, another thing, I guess, another question I get,(...) Steve, is property.
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Kath, I'll say to them, this property is brand new. People are hesitant at the moment buying off the plan. And I do understand their reasons for that and totally get it. And we tend to seek properties or to sort properties that are somewhat in construction or newly constructed, which is getting less and less as the months are going on. But one of the main questions I get is, Katharine, what is the difference if I get an old property or a new property? And I give them the general understanding with depreciation. But if you could just give us the benefits of either or. - And that's the key word is the depreciation. Your council rates, your water rates, those things are gonna be the same. - Correct. - What kind of property you've got. Is that appreciation is the key because in 9th of May, 2017, rules changed for individuals and rules changed for super funds so that an existing property, if you buy one, you can only claim depreciation on your capital works, which is your building,(...) those are the structural kind of things. If you bought an existing property, the oven and the stove and the dishwasher and the carpet, whatever else you've got in there, can't appreciate any of those things. The existing property. If you buy a new oven, that's fine because you have a receipt for it. But anything's existing, you can't. If you buy a new property, it's all new. It's never been rented before. It's never been claimed before. So therefore, everything's still deductible. So the biggest key is that depreciation difference on a new property versus an old property. - Awesome. - And that applies for super funds and individuals, not for other entities, but just for those two. - Awesome. And that's good. That's always been understanding and you've explained that very clearly,(...) especially I do remember when that change came in. Does the grandfather rule of either there at all? - Anything you buy now, no, that's it. If it's an existing property you had before then that you lived in, for example, and now you've decided that I'm gonna move out when I'm gonna rent it from today, it won't work. Because you're renting it after that date. - That makes sense. I guess another thing that I get asked, and a lot of people are very nervous about body corporate fees. A lot of people are very nervous about, you know, oh, I'm paying all this money on body corp. Do I see it back? Does the dweller itself,
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there's a house and land, there's houses, there's apartments, there's townhouses. Do you feel your profession, there's a big difference in losses or gains there? Do you feel that pretty much it?(...) - You've gotta be mindful of the costs. So definitely you buy a standalone, you've got your insurance and you've got full control over everything.
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The rates are gonna change, obviously water's gonna change, but it's just your bill.(...) The issue with body corporates is this, you're not in control of what's getting done. And then the decision may be that enough people vote that the new cladding's gotta get done, or when you're in your fences, or when you're in your driveway, and you may get outvoted, it's still gonna go ahead. And you've gotta pay your percentage of whatever the bills are. And yes, a lot of these things aren't tax deductible,(...) but it's still money coming out of your pocket.
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- Yeah, at the time. - At the time, exactly. So I always say to people, if you're trying to compare an existing property,
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same price, same you're gonna buy, and you've got one right next door that is in a body corporate. Same cost, same type of property, but you just got one standalone and whatnot. You really gotta consider going with the standalone, just from the cost point of view. It's not advice, I can't give that, but you just gotta weigh it up. And when you look at it, you've gotta say, well,(...) what are the costs coming out? And tax deductions are great, but I'd rather, the end game is everyone has positively geared properties. You don't want to have negative. We have negative in the beginning, and there's tax benefits, and we get that, and we maximise that. But ideally, if you can get to the point where they're all positive, it's money in your pocket. That's where you want to be. So you just gotta look at the costs. - Yep, totally. Awesome. Another one, I guess, that I get a lot, Stephen, is we've been through sort of the common denominations and that sort of thing. Isn't it, percentages is one thing that I always get lost on, because it changes so much. And your voice sort of taught me rule of thumb for generally what people get back.
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One thing that I find, when you say something is 100% tax deductible, explain to our listeners what that actually makes.
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For example, for a phone. - Yep. - Yep. - So you look at any of the deductions on the property, and if we say that your counter rate's 100% deductible, the interest on your loan, 100% deductible.
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All those expenses, 100% deductible. And what that means is you have your rent for the year on the property, say it's 30,000 a year, and you have your expenses. And we add up all those relative expenses you've got, including your depreciation, including the interest on your loan. We add up all those things that you've spent, and you claim that as your deduction. So you have your 30,000 of your 40,000. That creates your 10 grand negative. - Right. - That $10,000 negative, in effect, goes in your tax return no different to donations,(...) or clothing, or mobile phone bill, whatever it may be. It's deduction. So then what percentage you get back depends on your tax rate.(...) So if you're on, again, you're on 200,000 a year. And you're at the highest tax rate, you're gonna get almost half of that back. - Okay. - In your refund. Purely looking at that only. - Did you hear that, guys? - That's how it works. - Very important. - So you're not factoring, obviously, everything else in. - Yeah. - They may have interest, they may have dividends, whatever else. But purely looking at the property only, you're gonna get back about half. If your income's 80,000 a year, your tax rate's lower. - Yes. - Which means the benefit, the percentage, as you said, percentage is gonna be lower. - Yes. - So having a set percentage for one person doesn't apply. It's knowing that's what your tax deduction's gonna be. And again, that's why you gotta look at the position and your situation to say, well, what's my income?(...) You might have a husband and wife, the wife's about to go on maternity leave. - Yes. - She's not gonna work for 12 months. Her half will probably give her hardly any benefit at all because her income's gonna be very low. - That is, yep. I'm so glad you've said that. And this is why listeners and viewers,(...) my accountant has taught me to look at the ATO calculator very, very clearly when I put in each and every one of your incomes and try to give you a number.
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One thing that we can never promise you is an exact number. And like Stephen just said, it changes all the time. So, yeah, no, thank you. And that's something that you do clarify for our clients quite regularly. So it's great.
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Now, we all know, Stephen, that Chase work very, very closely in the property section when it comes to having a property within a self-managed super fund.
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And self-managed super funds are something that have really taken to popularity. I would say, dear, for the last five years, I'm just noticing that everyone or every other person you use who has a self-managed super fund.
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We have some pros and cons for self-managed super fund that I have to hack in our listeners through the fund. But I would love it from your professionalism and your sector. If you could advise our listeners,(...) you think the product owner is having a property in a self-managed super fund and potentially what they need to look out for and an accounting point of that. - That's what I was gonna say. I'm not an advisor. I can't be advising you to buy or to not buy a property. That's not what I do. But I can tell you how it works.(...) And having a property in the super needs and if that's what you wanna do, it's not a bad idea at all.(...) The money's there. If you prefer to not be in the share market, you've got cash there where you deposit. And we know finding a deposit is the hardest part to buy a property. So you've got the deposit and you can get a property that's not too negatively needed, then you've got it covered.
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You also gotta remember too in the super fund, you've got your fund contributions. It's also gonna help. So it's just the rent going in. You've also got your work contributions going in as well. And that all goes towards paying off the mortgage and paying off the accounts, rates, rest of the costs.
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And hopefully there's money left over and the fund's still going in value.
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And that probably then leads into, that's the positive. The negative is that if you are a bit short and as rates have changed a lot recently, we know that. So as rates change or as costs go up, or if you lose a tenant and you're gonna attend it for four months or you lose your job and you're gonna commit your abuses, things can check. And if you don't have the cashflow in your fund to make the repayments or to pay your bills, then you're into putting some of your own money in. Which is a negative on a cashflow point of view. But there are still tax benefits. You can claim that potentially, especially again on your situation. You can claim that as a concessional contribution. You potentially pay no tax in the Superfund and you'll get that sent back just like negative gearing up, you're in turn are no different to again, a organ bill or a donation. There are tax benefits to that. And hopefully you don't have to continue doing it. - Yes, yes. - Get a tenant in, rates go down. All those kinds of things change. - RBA, RBA, RBA. - That's what we need, exactly. You need to raise the challenge.(...) But yes, if that can happen,(...) if you've got the funds in the Superfund to cover it, then it just runs itself. And from a tax point of view, you got to get an accountant to do the accounts for you. It's got to get audited, terms compliance,(...) which with all your clients, we go through all the steps. So that you need to do. - Do you have a case when that happens? - Yeah, a lot of compliance. It's not difficult. It's just knowing what you need to keep and what steps. And it's just documentation. You know what to keep. And it's not hard to do. - And it's pretty much for everyone out there, don't ignore the accountant when he sends you an email asking you what he needs. Because then the ATO send you the next letter and you don't want that. So, you know, we want happy days. That's what we want. - Lodging on time, keeping them happy. That's exactly what we wanted it. Exactly right. - And then the accountant gets narky because he has to do everything in three days. - Yeah, that's right. - And then I have to hear it. - Deadlines aren't fun. No, exactly. But there is a bit of things. So when we're talking about Superfunds and talking about rental properties and the top 10 negative gearing,
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a lot of clients will come in and they're saying, well, I've got a personal property already. I get $15,000 back a year. It's negative, I've got good depreciation, all these kinds of claims, which is great. And then when it comes to high, that's really good. And then it comes to their Superfund and they've got a similar property and they've got similar negative gearing and they're asking, okay, so my refund basically coming. Doesn't work the same way in the Superfund.(...) Superfund, you're not going to be any tax during the year. So you don't have a refund to come back to you if you haven't paid any tax. What that negative does though, is it will offset the tax that you would normally pay on your contribution.(...) So your work contributes $10,000 into your industry fund. They're taking out 15% teams, you're losing $1,500.
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If you hear those contributions going to your fund and the gearing covers the contributions, you're not paying any tax in your fund. So you've saved that $1,500. So it's not a tax-free fund, it's a tax saving.(...) It probably won't be as big as it is personally. And that's usually not the way it works. And if you have an overall negative, that loss doesn't get lost, it stays in the Superfund.(...) Accumulates from year to year. And then when the time comes that you do sell it and you make a capital gain, we all hope, then that loss will offset it against your capital gain. So then it's gonna reduce your tax in the future. So it's not lost.
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You just gotta remember that the tax side in the Superfund is definitely secondary as it should be personally as well. But you get the right property and you want to have in value. You're not so worried about the negative gear.
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And individually as well, it's the same thing too. I mean, this is your area, not my area. But again, you gotta worry about the property you're buying has to be a good property. The tax perks have to be secondary.
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- Well, Stevie, you just said it perfectly. - And that's, you're very right. And that's where our expertise does kick in with the property. It's getting a lot harder now to be able to allocate the right property(...) within a self-managed Superfund. Because again, it's that negative concept. The property capital is climbing a lot quicker than what the rents are.
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So it's very hard to, and where the rates are, where they are at the moment, I can't think of one strategy I've put together in the last six to eight months that's been neutrally or positively cash-flood. And the question that I have for my clients is, are you prepared to maybe tip in $10,000 for the year to make 60,000 in capital? - That's what it is. And that's what we see as well when we're doing financials for any clients that have properties, is you've gotta weigh out that, yes, a lot of them at the moment, especially a negative, and they're making losses from a cashflow point of view, and even from a tax point of view. And that's fine, as long as we see the value of the property going in the right direction, not gonna be every year, but as long as overall it's going in the right direction, then you're covering that loss. So you'd say, why did I do this? That's the reason why. I'll lose 10,000 a year to make 50 a year, kind of makes sense. - Yes, that's right. - So there's a little bit of short-term pain for the long-term gain. That's what you're going for. - Well, that's it. - Yeah, that's what it's about. - Well, but thank you, Stephen. It's given, you know, you always tend to shed some light on our team when it comes to these interesting details. It's Chase Wealth Australia, not licensed accountants or financial planners by any means, we're property, but we rely quite heavily on the Lewandowski accounting group to give us the details we need to make sure that your property journey is a safe one.
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And I think that's where, you know, Stephen's been, what, 25 years now? - Nearly. - Nearly 25 years, like me, with property. I know we sort of got rolled out of high school and got him to it straight away.
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He's got two offices, Melbourne-based, but he does it nationally. He's got a great team that we deal with. - Location's not as important nowadays when you have internet server behind you. - True, true, tends to zoom, but you know, if you ever want to meet him in that, he's very personable. And I think that you're quite knowledgeable in this area. - Yeah, thank you. - Yeah, so to all our listeners, you know, when you do take that step for property investing, to make sure that your risk is mitigated,(...) I would strongly advise using the right account. Some account is that are not property driven. - Everybody does it. - Yeah. - I don't do everything either. - They don't like it? - No, but property, I do lots of, so yeah. - Yeah, good, good. You chose the right part. - That's right, yeah. - Yeah, that's it. Well, thank you, Stephen. - That's okay. - Appreciate your time today. - It's fun. - It was great having you on the show. - Yeah, good, thank you. - Thanks, our listeners, and we'll see you next time for an amazing, amazing podcast about the property cycle that occurred. Well, I guess a property update, day Q1 of 2024. Stay tuned. Thanks a lot.