With the ATO stating that close to 9 out of 10 tax returns with rental properties were found to have errors in them, it’s a good time to review what tax deductions you can make and where you can legally save on tax.
1. Prepay interest
The ATO will allow you to claim a tax deduction for prepaid interest on your investment property for up to 12 months in advance. So if you are expecting that you will have a lower income next year (due to factors such as maternity leave, business slow down or redundancy) then why not prepay and reduce your higher income this year.
2. Depreciation schedule & Scrapping Schedule
If your investment property was built after 18 July 1985 then it may be worthwhile organising a depreciation schedule from a quantity surveyor. This allows you to claim the write-off of the building and fixtures within your property in your tax return. You may be able to recoup the quantity surveyors fee in your first tax years return as the deduction can be in the thousands each year. You may also consider amending prior year tax returns to claim any missed tax deductions
You can also get a quantity surveyor to do a scrapping schedule if you’re doing any renovations or if you’re replacing anything major within your investment property. The quantity surveyor will effectively measure how much of the value of that item is left and you can then claim that as depreciation.
For example, let’s assume you are upgrading existing curtains & blinds. They cost you $4,000 when you first installed them and they are now worth $500, ie you have $500 left that you haven’t claimed.
This $500 can be scrapped because you’re replacing them with new ones, and you can claim that $500 as a tax deduction.
3. Minimise capital gains tax (CGT)
When trying to sell your property and you are looking to crystallise capital gain then you may wish to contemplate exchanging contracts after 1 July to defer tax for another year. And remember that if you hold your investment property for more than 12 months you may be able to reduce CGT by half.
4. PAYG Withholding Variation
Where you have a negatively geared property, you can look to vary the amount of tax that is withheld from your salary each pay period. Meaning cash in your pocket sooner rather than waiting for your refund at the end of the financial year. You can arrange for the PAYG Withholding Variation to be lodged with the ATO and have the payroll staff withhold less from your salary.
5. Keep your receipts
Through many 1000’s of ATO audits, the ATO have been cracking down on rental deductions with no receipts, to avoid this, keep all receipts that relate to your rental properties so that you can maximise your tax deductions at tax time, and not be stung by the ATO
6. Foreign investment properties
There is a big focus on data sharing across countries, as Australian tax residents, we are taxed on our worldwide income, which means any rental properties in other jurisdictions. You need to ensure that you disclose this rental income in your Australian tax return and claim any tax credits for tax paid in that jurisdiction.
7. Get a great accountant
Avoid paying too much in tax or leaving yourself exposed to a visit from the taxman. Come and make an appointment our team at Trident Financial Group to see where we can find you some extra rental property tax deductions.
Thanks for reading, hope you enjoyed our 7 tax tips for Investment Property Owners.
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.