Dr Adrian Raftery, a senior lecturer at Deakin University and author of 101 Ways to Save Money on your Tax – Legally! (2014-2015 edition), offers tax tips to property investors.
1. Preliminary Repairs
Claiming initial repairs or capital upgrades as an immediate deduction is a common mistake.
“Initial repairs to rectify damage, defects or deterioration that existed at the time of purchasing a property are generally considered capital in nature and not deductible, even if conducted to make the property suitable for renting.”
According to Adrian, it is better to claim depreciation on this expense as capital works deduction over 40 years!
2. Prepay Interest
If you envisage a lower income next year (as a result of factors like maternity leave or redundancy), Adrian recommends prepaying interest for a maximum of 12 months prior the end of the year on your rental property, thus lower your higher income.
3. Depreciation Timetable
For an investment property constructed after 18 July 1985, organise a depreciation timetable from a quantity surveyor. Adrian says, “You should be able to recoup their fee in your first tax return as deductions can be in the thousands each year.”
4. Travel to visit your property
How many times can you claim trips to visit your property? The old wives’ tale of making a claim of two trips annually is not true.
There is no limit as long as the intention of the trip is to honestly look at the property and don’t include a family holiday in it.
5. PAYG Withholding Variation
Have you been negatively gearing a property and having a hard time with cash flow in the past year? Consider a “mini-tax return” called a PAYG Withholding Variation Application, and see less tax deducted from each of your salary packet.
6. Investment Properties Abroad
The ATO is coming down hard on taxpayers who own properties abroad as they acquire more information every year from other tax districts.
Divulge any income that you earn as you are taxed on overseas income as a tax-paying Australian citizen. You can potentially negatively gear these properties since you can file a claim interest, rates, repairs, insurance and other deductions on these properties.
7. Don’t Throw Away Receipts
Every year the ATO gets in touch with thousands of taxpayers who have rental properties in order to further increase scrutinise their claims. It is important for you to be able to explain and validate your claim with the ATO intensifying their audit activity this year again.
“No receipt = no deduction” is the ATO’s motto, so you could be losing dollars by throwing away those dockets.
8. Reduce Capital Gains Tax (CGT)
If you are attempting to put a property for sale and win a decent capital gain, think about swapping contracts after 1 July to postpone tax to next year.
And don’t forget that you lower CGT by 50% if you keep investment property for over 12 months.
9. Hire a Good Accountant
Keep great people around you. This is not a new advice – and good results have been proven.
Good accountants are comparable to surveyors – they are aware of where the limits lie (and you claim their fees as tax deductions).