Tax and legal advice

Tax tips for property investors: how to get more money back

By Georgia Brown
Tax tips for property investors

Are you missing out on certain claims and deductions when it comes to tax time? Here’s how property investors can make the most of their tax returns.

What can you claim?
There are a lot of tax-deductible items that property investors may not be aware of. Although a tax deduction on the more financially demanding items is a lot more attractive, the little things do add up. The following is a list of tax-deductible expenses related to owning an investment property:

  • Advertising costs and management fees
  • Lease costs
  • Building and landlord insurance
  • Accounting and bookkeeping fees
  • Tax-related expenses
  • Council rates
  • Legal expenses – in case of mediation or tenant/landlord dispute
  • Depreciating assets
  • Loan interest and ongoing fees
  • Travel expenses – to inspect the property etc.
  • Strata/body corporate fees
  • Electricity, gas and water
  • Repairs and maintenance
  • Quantity surveyors’ fees – a quantity surveyor is a professional who is qualified to produce depreciation schedules, which you can use to claim tax benefits from property depreciation
  • Stationery and postage expenses relating to managing your property
  • Garden maintenance

However, these are not necessarily applicable to all investment properties or investors, and may not always be paid in full.

There are a number of misconceptions about claimable expenses such as initial repairs. Repairs made to the property immediately after purchase are typically not tax-deductible, as they are viewed as capital in nature.

It is also commonly believed that there is a cap on the number of travel expenses deductible per tax year. This is not the case, as long as the property owner retains proof that the trip was purely for business purposes.

It is essential that all receipts are retained at least until your tax return has been finalised, as it is not uncommon for the ATO to contact property investors for proof of expenses. It is suggested that receipts and other proof of purchase are kept for a minimum of five years.

What is depreciation and how does it work?
A property will inevitably depreciate in value from wear and tear over time, and much like with a car used for business purposes, the depreciation of an investment property can be claimed as a tax deduction – as an investment property is purchased for income-producing purposes.

Property investors can claim depreciation on a property for a maximum of 40 years from the date of construction completion, which means investing in newer properties will give you greater depreciation benefits.

There are two main categories investors can claim for rental property depreciation – plant and equipment deductions and capital works/building deductions.

Capital works deductions involve anything to do with structural elements of the property, such as:

  • Structural walls
  • Wiring
  • Brickwork
  • Windows
  • Plumbing

Although deductions on capital work apply for 40 years from the date of construction of the property, renovations to the structural elements of the building can be claimed from the time of renovation.

Plant and equipment deductions involve anything that is easily replaceable within the property, including:

  • Tap fixtures
  • Carpets
  • Blinds
  • Water systems
  • Appliances

These parts of the building will depreciate from the time of instalment for the duration of each item’s individual effective life, with no reflection on the age of the property. The ATO has standard measures that determine the age of individual items. Once an item has reached the end of what is deemed to be its effective life, you can no longer claim depreciation of its value.

In order to make a claim for the depreciation of a property, investors must obtain a depreciation schedule, which lists deductions available on a specific property. Depreciation rates are determined by the original cost of construction of a property. Quantity surveyors can estimate construction costs for depreciation purposes when there are no records of these for a particular property, and produce depreciation schedules.

Investors frequently miss many items eligible for tax depreciation, particularly the following:

Top assets on which tax depreciation is rarely claimed

 

Asset

Depreciable Value

Exhaust fans

$125.00

Bathroom accessories – freestanding

$110.00

Shower curtains

$30.00

Door closers

$185.00

Smoke alarms

$145.00

Garden sheds – freestanding

$855.00

Ceiling fans

$265.00

Clocks electric

$20.00

Garbage bins

$250.00

Light fittings non-hardwired

$80.00

Mirrors – freestanding

$185.00

Radios

$55.00

Rugs

$245.00

Solar powered generating system assets

$5,500.00

Window shutters automatic

$800.00

Spa bath pumps

$425.00

Tennis court nets

$550.00

Garbage disposal units

$455.00

Water filters, electrical

$195.00

Garden lights, solar

$20.00

Tennis court maintenance equipment

$900.00

Closed circuit television system

$1,550.00

Water feature pumps

$225.00

Garden watering systems

$558.00

Intercom system

$745.00


Source: BMT Tax Depreciation

Understanding negative and positive gearing
In terms of property investment, gearing is where funds are borrowed in order to invest. It is important to understand how your property is geared to ensure you maximise your tax benefits.

Negative gearing
Negative gearing occurs when the total rental income of a property is less than the total costs involved with owning the property, including mortgage repayments, strata fees, maintenance costs, etc. A negatively geared property will put investors out of pocket initially, but is expected to grow in value over time – thus offsetting the initial losses.

Negatively geared properties allow investors to claim tax deductions from the expenses incurred from owning and maintaining the property. Investors may also be entitled to reductions on taxable income if they own a property that is negatively geared. A loss on an investment property is determined by subtracting the total amount of monetary loss from your annual taxable income, meaning you will be taxed at a lower overall rate.

Positive gearing
Positive gearing occurs when the total rental income of a property is more than the total costs involved with owning the property. A positively geared property gives you a secondary income, which is desirable – however, it is taxed accordingly.

Where to seek advice

  • Quantity surveyors – a quantity surveyor can issue individual property depreciation schedules, which you can use to benefit from tax deductions for depreciation of your property’s value.
  • Accountants – always appoint an accountant to finalise your tax return. Accountants’ fees are a tax-deductible expense for property investors.
  • Australian Taxation Office (ATO) – the ATO has information available specifically for property investors, such as the income you must declare, expenses you can claim, expenses deductible immediately and expenses deductible over several years.
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  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

" ["fulltext"]=> string(818) "

To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

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  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
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Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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