7 Ways Property Investment Can Benefit Your Tax Return In 2019
When most people think about property and tax return, their mind sprints straight to negative gearing.
As with business expense that leads to a loss, negative gearing as a concept is fine and an accepted form of tax reduction.
However, there’s a catch. Your negatively geared has to be genuinely losing money if you want to be able to offset this against your tax. Not quite a gravy train is it?
The fact is, you don’t need to negatively gear in order to minimise tax through property investing. Even if you break even or make a profit, there are ways you can claim deductions in order to reduce your taxable income.
Depending on the financial and legal structure you have purchased under, you may be able to claim any of the following…dependant on your personal situation of course.
As things get older, they start to wear out a little. In other words, they start to depreciate.
The good news is that you can claim this depreciation against your taxable income.
For properties purchased between 1987 and the 9th of May, 2017, investors can claim depreciation on both the building and the property’s fittings and fixtures.
For properties purchased after the 9th of May, 2017, while investors can claim on the building, they cannot claim on fittings and fixtures unless these were bought after gaining ownership of the property.
If you are renovating a property, you will need a scrapping schedule so that you can determine how much loss you will incur on the value of the items being thrown out.
A quantity surveyors report will help you figure out how much you can claim. The initial cost of getting this done is tax deductible, and it could save you thousands over the years.
2) LOAN INTEREST AND RELATED COSTS
If you have an investment loan, interest repayments and ongoing loan fees can be claimed against rental income.
This does not apply to personal home loans or for the interest charged on portions of the loan used to purchase personal items, such as a new car or overseas holiday.
3) REPAIRS, MAINTENANCE AND PEST CONTROL
While you might be able to claim many repairs and maintenance as tax deductions, you can’t do that with the cost of renovation.
But, as with anything to do with tax it’s not that straight forward:
- Work done to restore an item to the condition it was in before it deteriorated without altering or improving its essential character,
- Replacement of an item with similar parts and or materials,
- You can’t claim repairs undertaken within 12 months of purchase as tax deductions.
- Repairs done at the end of a tenancy to restore the property to the condition it was in before being rented can be claimed.
4) COSTS OF RENTING AND PROPERTY MANAGEMENT
You can claim property management fees as well as lease preparation fees. You can also claim the costs of advertising for tenants.
5) COUNCIL, WATER AND STRATA RATES
You can claim all these against your taxable income.
You can claim electricity and gas too, but only if it was you as the landlord and not the tenant who incurred the cost.
6) BUILDING AND LANDLORD INSURANCE
You can claim the cost of this as a deduction.
You can also claim legal costs related to a tenant defaulting on rent.
7) TRAVEL, PHONE COSTS AND STATIONARY
As of the 9th of May 2017, deductibility of certain property related expenses have changed. This time around, the budget focused on travel and depreciation. Let’s go through what is still claimable and what is not.
Claiming For Travel Expenses
Previously, if you were to travel to collect rent and/or perform inspections, you could have claimed motor vehicle expenses, airline travel, accommodation, car hire and meals as deductions. This is no longer the case. So,we recommend to keep all travel expenses to a minimum for tax deductibility purposes. To keep a watchful eye over your properties, we suggest using a good real estate agent who can perhaps assist with visitation or updates as a negotiated service as part of their fee. Or, perhaps a pre-determined fixed-fee for certain amounts of visitations by them.
Claiming For Phone Costs
You can claim telephone or technology expenses. If you have to make calls to the tenant or agent or to arrange for repairs, the cost of these calls can be claimed as deductions. You must keep a diary record of every call claimed. Or, if you use a computer/iPad or phone for the management of your investment property related administration, you can claim a portion for this use. Similarly, you can claim the software that you used to manage your portfolio.
Claiming For Stationary Costs
If you have to buy stationery that is related to the bookkeeping of your investment properties, the cost of this can also be claimed. If you purchase anything which is used to assist in maintaining your portfolio, with substantiation, we can either claim or depreciate the goods you have purchased. Very common in this situation are computers pro-rated to the amount used.
Claiming For PPE
Claiming Depreciation of PPE (Property and Equipment) has been abrogated for any assets which were not purchased as new by the taxpayer. Speak to your accountant for any additional clarification and a timeframe for when this is claimable.
JUST THE TIP OF THE ICEBERG
This is not an exhaustive list of all the things that can be claimed to reduce your taxable income.
An accountant can look at your situation, including your tax bracket and ownership structures, to figure out exactly what you can claim, and what you cannot.
As always, speak to your advisors to ensure you know the implication of the deductions and also to ensure that the property is actually serving a purpose other than just tax minimisation!
You may already have an accountant, in which case, speak to them about how property can benefit you at tax time. If you don’t however, or your accountant doesn’t specialise in property-related tax, get in touch with OnePath Accountants for a no-obligation consultation.
Ridhwan Hannan is a property investor and a Senior Tax Advisor from OnePath Accountants
You can contact Ridhwan at firstname.lastname@example.org or 1300 686 069