Tax minimisation through proeprty

Its getting close to the new year... the one we all shrink from – yes, that fiscal one, also known as the dreaded ‘tax time’ for most.  All that hard earned income taken away from individuals in a bid to service the greater good of Australia.  BUT if you do your homework, you can save yourself from donating thousands of dollars to the tax man!

The secret is in buying investment property.  According to the ATO, one in seven tax payers own an investment property.  It’s not only a great source of secondary income but if you do your research, you can leverage the tax implications and the costs involved in maintenance to maximise investment property deductions. Figures recently released by the Tax Office have noted a 35% increase in claimed deductions has lead to a combined $4billion tax savings for Australian property investors.  So owning an investment property is less of a financial burden than you may think!

So what can you claim?

Professional services:
Service fees such as agent commissions and advertising for tenants, property management fees and other professional services such as accountant and solicitor costs are all deductable.

Body corporate/Strata fees:
If your investment property is an apartment then this quarterly cost that covers the maintenance of the apartment block structure as well as upkeep of communal areas one that can be claimed.

Maintenance and cleaning:
If you restore an item to its original pre-rent condition at the end of a tenancy (such as painting and cleaning),  The expense of repair can be claimed.  However, if repairs are conducted during the first 12 months of investment purchase then they are not deductable.  For cleaning the house post-tenancy, the cost of materials only can be claimed for cleaning conducted both internally and externally.

Property rates:
Rates such as those for council, electricity, and gas can all be claimed

Insurances:
Mortgage protection is not automatically deductable but, building and contents; public liability and land lord insurance are all costs that can be deducted.

Travel:
This is a claim often overlooked by investment owners but if you use a car for collection of rent, property inspection and maintenance post tenancy, make sure you retain records of these trips as travel expenses are deductable.

For those who own holiday rentals ie the property is rented per week rather than annually or bi-annually, constant travel to the property after tenant vacation for cleaning and maintenance can add up.  But if personal travel is involved the cost may lose its claim ability.

Interest: 
This is the biggest expense incurred for investment property and can be regularly claimed until the property is paid off (?). Specifically, an interest in advanced home loan is a great way of using your loan to maximise your deductions.  Here, the borrower can make monthly, quarterly or annual payments of interest up to one financial year in advanced and then claim it as a deduction in the current financial year.

Depreciation:
This is a non-cash deduction but in essence, it is the cost you claim for general loss of value from your property and its contents.  An example to illustrate this process: If a light fitting takes 12 years for its value to depreciate and become written off, you can claim one-twelfth of the cost as an expense each financial year. 

There are two different depreciation allowances you can claim: one for assets in your property such as carpets and appliances and one for capital such as building materials and repairs. By obtaining a schedule from a quantity surveyor, you can calculate such allowances for the next 10-20 years and depreciation costs can be offset against your assessable income

But be aware! Investment property owners often fall into the trap of thinking that whatever money has been put into the property will be refunded through tax.  This is in fact a myth as there are a variety of variables that should be factored in to determine the amount you can claim. 

For more information about tax in relation to investment property, make sure to visit the Resi website.  If you want to grasp a more detailed understanding of the tax deductions available and applicable to you, contact the Australian Taxation Office or have a chat to your accountant.

But remember, even though tax benefits are a fantastic incentive for investing in property be sure to keep records of your income through bank statements, expenses via recepts and it is important for depreciation to be recorded correctly.  It all comes down to organisation.  It is the key in saving your money when the tax man comes knocking.

Resi Home Loans offers an ideal range of home loan and home mortgage products to suit your every need. To find the best home loans for you, check out our mortgage calculators and our current home loan rates today.