Tax deductions you can claim on your investment property
Investment properties (or properties used for income-producing purposes) have unique tax deductions that you can use to ...
In the lead-up to the new financial year, property investors are advised to take full advantage of the tax benefits available to them.
Blogger: Paul Bennion, managing director, DEPPRO
Investing in property is an effective way for ordinary Australians to both reduce their personal tax burden and create personal wealth.
Tax benefits such as negative gearing and depreciation have enabled millions of Australians over the years to buy investment properties to help fund their retirement.
These tax benefits relating to property allow people to claim back some of the billions of dollars in income taxes that the federal government collects every year.
For example, the latest ABS figures show that during the past financial year, the government collected a massive $258 billion in personal taxes.
During the past five financial years, the total value of personal income taxes in Australia has jumped by $72 billion, or 38.5%.
If you are paying thousands of dollars in income tax every year, investing in property could be worthwhile consideration once you have discussed your personal financial circumstances with an authorised financial adviser.
The option of investing in property is particularly attractive to people who are progressing rapidly in their careers, as the resulting higher wages mean higher income taxes.
With the new financial year fast approaching, these taxation figures underline the importance of all Australians claiming their legitimate tax allowances to help reduce their taxable income.
For example, an accurate tax depreciation report for an investment property can generate thousands of dollars in potential tax savings each year.
These generous tax depreciation benefits can equate to up to 60% of the price of a property. That means potential tax benefits of $300,000, for example, on a property purchased for $500,000.
Over the coming months, many investors will be looking at buying investment properties to coincide with the start of the new financial year.
This is particularly the case with high-income earners who want to reduce their taxable income by investing in property to create wealth.
If you buy an investment property, it is important to complete a tax depreciation schedule as soon as possible after settlement so that it complies with ATO guidelines.
For the initial cost of a tax depreciation report – which is tax deductible – investors can achieve thousands of dollars in tax benefits each year by legitimately claiming their full depreciation allowances. Even an older-style home can qualify for substantial tax depreciation benefits if a depreciation schedule is undertaken around the time of settlement.
To protect their interests and ensure the depreciation report is fully compliant with ATO rulings, property investors should select a company that is a member of the Australian Institute of Quantity Surveyors (AIQS) and uses systems that are fully compliant with ATO rulings.