Getting the max out of tax

The fantastic part about property investing is that you can make the tax man your best friend. There are different ways to potentially minimise your tax through property investing.

Depending on which government tax laws are applicable to you, most governments encourage investors to purchase investment properties by providing tax concessions. You should consult with your accountant to establish what tax concessions apply to you and your property investments.

Some of the tax concessions we’ve enjoyed over the years are as follows:

Tax deductible depreciation
The Australian Taxation Office (ATO) has deemed that the building, plant, equipment and chattels of investment properties will lose or depreciate in value over time, due to general wear and tear. Because they depreciate in value, the ATO allows investors to claim the depreciated amount as tax deductions against the earned income from the investment property. The amount of depreciation that’s applicable to each item is best determined by a qualified quantity surveyor who, for a fee, will prepare a depreciation schedule for each investment property you own.

Generally, plant, equipment and chattels can be fully depreciated over a shorter timeframe than the building. In Australia the ATO has allowed new investment property buildings to be depreciated at a rate of 2.5 per cent annually for 40 years, whereas chattels can generally be depreciated over a five to 10-year period. The depreciation amount that can be claimed each year will vary from property to property. When the depreciation schedule is obtained from the quantity surveyor, you should give it to your accountant who in turn will include the deductions in your tax assessments.     

Don’t be fooled into not getting a depreciation schedule for older properties. Renovations and replacement plant, equipment and chattels can still attract a hefty depreciation amount.

Negative gearing
The ATO also allows losses in investment properties to be claimed as deductions against income earned from an employer. This is termed ‘negative gearing’, the effect of which can turn what would normally be a pittance of a tax return into a substantial refund. The property, however, needs to be held in your own name to be able to do this. Seek the advice of your accountant when determining what can and can’t be geared against your income. 
 
Tax deductible interest
The ATO also allows you to claim the interest paid on the loan for the investment property as a tax deduction. Beware that if you have a principal and interest (P&I) loan on the investment property you won’t be able to claim the amount of principal that you’re paying off each month, it’s only the interest component that you can claim. Seek the advice of your accountant when determining what deductible interest is and isn’t.

If you’ve refinanced your home and taken the equity out to use as a deposit on an investment property, then the interest on the equity taken out of your own home is also deductible against your personal income or the income from the investment property. Again seek the advice of your accountant on what is and isn’t deductible.      

Tax deductible property expenses
The ATO also allows you to claim the expenses that are required to maintain your investment property as a tax deduction. This includes rates, maintenance repairs, body corporate fees, insurance premiums, property management fees, phone calls related to the property and any other expenses that relate to holding and maintaining the property. Again, seek the guidance of your accountant when determining what is and isn’t an allowable property expense deduction. 
 
Tax deductible trips to inspect properties
Another expense the ATO allows you to claim is the cost of inspecting your investment properties. This includes taxis, airfares (if your investment property is interstate or overseas), accommodation, hire cars, food and beverage and any other expenses incurred in the act of inspecting your investment property. There are some pretty strict guidelines, so once again seek advice from your accountant as to what you can and can’t claim during trips to inspect your properties.
  
One thing is clear… to enjoy the tax benefits associated with property investing, it’s vital that you speak to your accountant to ensure they analyse your personal situation to make the tax benefits work for you.

Until next time, happy investing.

Helen Collier-Kogtevs
Investor and Author of 47 Biggest Mistakes Made By Propety Investors and How to Avoid Them.

Real Wealth Australia
www.realwealthaustralia.com.au

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