A big 2023 welcome to all my readers.
Tax preparation
As we all slowly drag ourselves back to work, we find that some things dont change, and other things, step up to challenge us as always. You see in 2023 the christmas bills keep coming and for many the income drops as customers take a break.
If you are in business then now is the time to take stock of YTD results, and to use the ‘quiet’ time to get your affairs together. A good place to start is to review your Profit & Loss statement to December 31, 2022, then look at your assets and liabilities as at that date. Now start projecting your income and expenses for the next 6 months, and see what cash flow looks like in the months ahead.
Tax payable is the product of financial activity and planning. A sensible approach is to forecast what your tax payable or tax refund will be, come June 30, 2023.
There should be no surprises if you plan correctly.
Your individual returns will comprise income from salary & wages, less work related expenses (WRE). Think about WRE and tracking these now so you can provide the details to your accountant come tax time. Start filing relevant details for Investments in shares, or a rental property, in a folder so that you have half the year ready for your accountant. This will reduce your stress level at tax time and probably the bill from your tax agent.
If you have a business, then make sure that. you have a ‘handle’ on the income and expenses for the first 6 months of the tax year. If you havn’t put an accounting solution in place, then get one and bring the results up to date on that system.
Most accounting solutions (e.g. Xero, Quick Books, MYOB) have an easy set up process that provides a link to your bank account that enables bank feeds of all transactions from a stated date. The push of a button will pull all transactions into your set of accounts in one process and place these into account categories and time periods (monthly). Automatic reports can be generated for YTD results. Some set up is required, but professionals are available to help. Most importantly, at year end you can hand your accountant a set of accounts that will facilitate return preparation and reduce professional fees. Subscriptions for e.g. Xero range from $29-$76 per month.
Take action now to get your tax affairs together and tax time will be a pleasant experience.
Saving for your first home?
I am a great believer in buying property to anchor your future.
There are incentives to help you get that deposit together. Fortunately NSW state government elections are coming in March 2023 and they bring about promises and sometimes legislation that actually help people get on in their lives.
The First Home Buyers Choice is a recent initiative that has now been legislated for stamp duty options on purchase of homes that you live in, up to a value of $1.5m.
Check it out, check your availability and calculate the result. This is a good initiative for first home buyers and will lower the entry level into property. It will lower the time it takes to save a deposit, and it will lower the initial cost of the property. If you bought after November 11, 2022 you can opt in for a property tax and it will be adjusted retrospectively.
N.B. Geater stamp duty exemptions will apply for homes up to a value of $800,000.
Stamp Duty on purchase or a property tax
In general you will be better off in the long term if you pay for stamp duty up front.
Why do I say this?
I have a principal in all financial decisions that
a price now is more certain than a price in the future.
It is final, it is a ‘sunk cost’ in all future projections, and it gives options.
If you chose the property tax option, then the property costs will be less and you can borrow more to buy a more expensive property. (up to 1.5m). However there are caveats. If you later chose to rent out the property, the annual property tax will rise significantly. (Check the site above).
Other considerations are that future governments may increase the property tax rate. Remember that this is a lifetime tax over which you have no control. Also stamp duty paid up front adds to the capital base cost of your property for capital gains purposes, and if a property is sold, then capital gains tax (CGT) is payable on the proceeds for the period over which it was used as a rental property. The cost base lowers the capital gains tax payable.
In summary, if you are a first home buyer in NSW struggling for a deposit, and you have to pay more than $800,000 for a home (especially in Sydney), then there may be merit in opting for the tax. It will increase your purchasing power (buy a more expensive home), or it will reduce your home loan (meet bank guidelines). If the deposit can be raised through other sources, it is best to pay the stamp duty upfront with the purchase.
Well thats it for this post. A short one to start the year.
All the best for 2023
Comment or call me if you have any questions.
Peter Cox