With the end of financial year fast approaching, we thought we’d share some great tax tips for maximising your investment property deductions. With over 1.8 million people claiming more than $42 billion in property deductions each year, you want to make sure you are claiming all the right things…correctly.
- Prepay Interest
If you are expecting to earn less income next year (e.g. due to maternity leave), then consider prepaying your interest in advance. That way you can claim a larger deduction this financial year thereby reducing your tax, leaving you more free cash for the following year when you might need it the most.
Interest is by far the largest tax deduction in a negative gearing arrangement. Interest charged on investment loans is tax deductible, however the principal (capital) repayments are not. If you are paying both principal and interest, you will need to determine the interest component, which most banks highlight on their loan statements. Similar concept with split loans used to purchase a home and rental property, only the interest component attributed to the rental property is tax deductible.
- Depreciation schedule
If your investment property was built after July 1985, or if you are completing a major renovation then consider getting a depreciation schedule from a quantity surveyor. The report not only covers the actual building, but other items like rain water tanks, carports, dishwashers and air-conditioning units. The tax savings claimed through deduction can be thousands each year and as a bonus their fee is tax deductible as well.
- PAYG variation
This tip mainly applies where you have negatively geared your investment property. Normally your investment property expenses reduce your personal tax payable at the end of the financial year to the extent you receive a large tax refund.
But wouldn’t be nice to get that refund upfront? You can by asking your employer to reduce the PAYG tax withheld on your wages or salary paid during the year. That way you spread the refund over the current financial to help your cash-flow.
- Travel
Did you know that you can claim the cost of travelling to your investment property to inspect it. Even the costs incurred to collect the rent. Car hire, airfares and accommodation etc. can all be claimed; however you will need to remove any part that relates to a personal component, like an extended trip for a family holiday.
- Defer capital gains tax
A tip for those looking to sell close to the end of the financial year, considering exchanging contracts just after 1 July where practical, that way you have deferred the capital gain tax payable for another year.
If you hold your investment property for more than 12 months, then you may be entitled to reduce the capital gains made on the sale of the property by 50% before tax.
Budget Announcement: For most mum and dad property investors, regardless how many investment properties you own, it will generally not be considered a “small business”, therefore the recent Government announcement about claiming an immediate tax deduction for individual assets purchased up to $20,000 would not normally apply to you. Speak to your accountant for further details.
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The information contained in this article is general in nature and does not take into account your personal situation or objectives. You should not act on this information in any way before seeking professional taxation advice.
