It’s that time of year again… Tax time for property investors. As the end of the financial year fast approaches, this is the ideal time to discuss some tax planning strategies with your accountant. Owning an investment property is a rewarding experience, but it doesn’t just come in the way of capital growth and rent. There are many tax entitlements that you should be aware of. Planning ahead will boost your overall returns.
As your accountant will be entering their busiest time of year, it’s ideal to schedule an appointment in advance. Most accountants have systems in place to either meet you in person, at their office or via a zoom call meeting.
Here are some tips to help you get the most out of your taxable situation:
Keep everything on file
There are many tax deductible expenses relating to property investment. If you are wanting to make the most from your taxable situation, you need to keep evidence on file in order to claim. Holding too much is a better solution than not enough.
Investment property expenses
There are many internal and external property expenses incurred when owning an investment property. Here are a few that may be tax deductible, but we strongly urge you to seek advice from an accountant before incurring these cost if you are doing so for tax purpose rather than just property maintenance.
- Gardening (landscaping maintenance, lawn mowing etc)
- Cleaning (carpet steam cleaning, professional cleaning services etc).
- Controlling pests (treatment and/or removal of pests)
- Plumbing
Insurance
It’s important to insure your asset. Some insurance premiums may be tax deductible. You may have landlord cover, building insurance or contents cover to name a few.
Property outgoing costs
There are a number of outgoings that a property investor may need to pay to keep the property. The three main expenses are council rates, owners corporation fees and water rates. These may be tax deductible and should be discussed with your accountant.
Depreciation
One of the most widely reason investors turn to buy property, is the tax deductibility of tax depreciation. Assets including property values generally decrease over time. Interestingly, the property goes against this trend as demand for your property will increase the value, regardless of if it’s new or old. There are many internal fixture and fittings that have a shorter life span such as ovens and dishwashers. These are also known as plant and equipment.
Tax depreciation can be claimed for up to 40 years, depending on how you’ve approached it and how old the property is. The best means to claim this effectively is to employ a quantity surveyor to assess the deprecation of the house itself (capital works). They establish a year-on-year table that confirms your maximum entitlement each year.
This is effectively a non-cash expense and generally the largest tax deduction for property investors. Your accountant can explain this in more detail and in accordance with your personal circumstances.
Borrowing expenses
For most property investors, they purchase a property using borrowed funds. An investment loan. When acquiring an investment loan, you’ll be paying monthly interest, incurring a monthly fee or an annual administration cost. When acquiring a loan, you may incur other costs. These include lender’s mortgage insurance, mortgage broker fees, loan establishment costs and valuation fees. These can be treated in a variety of ways, many consider it to be part of the cost to purchase an investment property. Please ensure you keep your loan offer documents and statements so your accountant can discuss and apply the right tax planning advice for you.
Property manager fees
Employing a property manager is a key ingredient to a successful property investment. They will source and investigate tenant applications, inspect the property regularly and collect rent. They can also take care of paying your property expenses by deducting these costs from your monthly rent. The property manager will issue you an annual tax statement that outlines all of the income and expenses for the financial year in question. The property management fees are also generally tax deductible. The annual tax statement is a great piece of evidence to reduce your administration burden at tax time,
Capital gains tax
When disposing of an investment property or selling it, if a profit has been made, you are likely to be paying capital gains tax. The best step to approach an investment property sale is to discuss this in advance with your accountant. You will be able to identify what your potential capital gain situation will be and can learn how you may be able to reduce the capital gains tax that comes with it.
Don’t leave this conversation for after the property sale. It’s too late to implement some strategies.
Do you need help?
At Crest Property Investments we specialise in sourcing brand new and off the plan properties for buyers. We see great value in owning a brand new investment property as opposed to an old property. New properties are very appealing as they represent longevity, low property maintenance and great tax benefits!
You can learn by visiting the Australian Tax Office. They have useful information too.
If you’d like to learn more, please don’t hesitate to contact us.
April 2021
