The new financial year is here and many of us are probably trying to find the paperwork to support our various tax deductions.
Indeed, we were likely doing the same thing last year and the year before that, too!
That’s why the start of each financial year is the ideal time to put systems in place for the following year – clearly including some organisational skills.
Market conditions are strengthening across Southeast Queensland, which is promising for the second half of this year.
But some buyers may miss out on securing their first or next property because of their tax returns.
You see, lenders are still being cautious because of the ongoing economic impact of coronavirus and part of that is when it comes to a buyer’s borrowing capacity.
One of the ways that they calculate that is by looking at a potential mortgage holder’s income, which includes their most recent tax returns.
1. Home office expenses
This financial year there are more tax deductions than usual because many of us have worked from home.
This means that some taxpayers will claim deductions on the costs of running a home office.
These can vary depending on your own individual circumstances, so it’s important to seek advice from a qualified accountant.
However, the main thing to consider is that these deductions ultimately reduce your taxable income, which can potentially impact your borrowing capacity.
2. Self-employed income
For some strange reason, lenders continue to scrutinize self-employed people more intently than anyone else, when a growing percentage of our population are their own bosses.
Most self-employed people must have at least one to two financial years under their belts before lenders are likely to consider their mortgage applications.
Self-employed people also generally can claim more deductions because there are simply more costs involved in working for yourself.
However, like the first point above, reducing your taxable income down as low as possible may be a turn-off to potential lenders.
Sure, your taxable income may often not be reflective of the revenue that you or your small business earns, but lenders usually don’t have the same point of view.
3. Consider opportunity costs
An opportunity cost when it comes to property is when you miss out on buying, which ultimately may have improved your financial future.
This is what is at stake for potential buyers who opt to claim every tax deduction under the sun this financial year.
Sure, they may end up with a tax refund of a few thousand dollars in their bank account.
But, when they approach a lender or a mortgage broker, they may find out that their desire for a tax refund has reduced their chances of securing finance for a property purchase.
So, the opportunity cost in this scenario is, perhaps, that instead of a buying a median-priced property in Southeast Queensland in the next few months, a buyer may have to sit on the sidelines for another year before they qualify for a property loan.
In that time, for example, that median-priced property may have increased in value by tens of thousands of dollars.
That refund of a few thousand dollars starts to look like quite unspectacular in comparison, doesn’t it?
So, if you’re keen to buy a property over the next few months, it’s wise to consider whether a tax refund is more valuable than investing in an asset that is likely to deliver strong returns over the years ahead.
The information in this blog is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.