At Nieuvision our tax specialists are committed to minimising your tax and getting your money back into your pocket! We want you to get the best out of each of your investment properties and continue you on your journey to wealth.
You may not know that there are a number of tax benefits available to property investors which don’t require extensive knowledge of the taxation system. These benefits (while helpful in offsetting the cost of holding a property while pursuing a ‘buy and hold’ capital growth strategy) may be affected by different ownership structures – an important point to remember.
We’ve outlined some strategies for you to consider.
Negative gearing (and deductible costs)
Negative gearing is the main and most talked about tax benefit. Essentially, it softens the blow of owning an investment property by allowing you to claim the difference between income and costs as a deduction – thus reducing your overall taxable income while the property gains in value.
The main advantage of negative gearing is that it makes a rental property much more affordable as the tax savings can be substantial.
As a landlord you can claim tax deductions for a wide range of the expenses related to your rental property (including interest on the loan). Our tax specialists can give you a clear picture of what you can claim for your personal circumstances, though in general the following expenses can normally be claimed on tax:
- Real estate management fees
- Council and water rates
- Insurance
- Advertising for tenants and property management fees.
- Loan interest and ongoing loan fees.
- Council rates, land tax and strata fees.
- Building depreciation plus depreciation of fittings and fixtures like stoves, carpets and hot water heaters.
- Repairs, maintenance, pest control and gardening.
- Building and landlord insurance.
- Stationery, phone costs and any travel to inspect the property.
- Accounting or bookkeeping fees.
Depreciation
This is a generic term used to describe how an asset declines in value over time. Property investors can claim depreciation as a deduction from their overall income. Depreciation of an investment property is based on its ‘useful life’, or the number of years a property is expected to be in use. (Depending on the type of property and when it was built, a property’s useful life can range from 25 years to 40 years.)
It is wise to talk to a professional to get a comprehensive list of assets that depreciate, but in general you can claim against:
- carpet
- ovens, cooktops, dishwashers, clothes dryers
- blinds and curtains
- air conditioners
- heaters
- hot water systems
Depreciation is based on the replacement cost of the item, which may vary in value depending on the type and quality of the asset. You can save considerable money by noting the depreciation of assets – don’t be fooled into thinking your property is “too old” as you can often back date a claim.
PAYG variations
A point worth noting is that you don’t have to wait until the end of the tax year to take advantage of these savings. If you fill in a PAYG Withholding Variation form, you can spread the tax refund that would normally be paid at year end throughout the course of the year. This is an effective way to improve monthly cash flow.
Capital gains tax
You may choose, for various reasons, to sell your investment property. If you make a profit on the sale you have made a ‘capital gain’. This gain is taxable and the profit is added to your regular income in the year you made the sale. The tax will then be determined accordingly. There are important capital gains tax concessions available to property investors.
- The cost base used to calculate the capital gain includes the price you paid for the property plus buying and selling costs like stamp duty, legal fees and agent’s selling commission. This helps to reduce the profit for tax purposes.
- Also, if you’ve had the property for over 12 months you’re entitled to claim a 50% discount on the capital gain at tax time. So, if you made a profit of $100,000 on the sale of the place but you have owned it for over one year, you will only pay tax on a profit of $50,000. This represents a significant saving of tax for investors and it offers a good incentive to own the property for the long term.
Claiming
When making any taxation claims, you need to keep all official documentation (including receipts and bank statements) and an accurate depreciation schedule.
Refer to the ATO website for a complete list of claims or talk to one of our Tax Specialists.
Call us today on 1300 832 554.
