Over 1.88 million people claimed more than $41.8 billion in rental deductions in their tax return last year.
We chatted to Dr Adrian Raftery, a senior lecturer at Deakin University and author of 101 Ways to Save Money on Your Tax – Legally! (2014-2015 edition) about how property investors should be approaching and optimising their planning this tax season.
1. Initial repairs
Adrian says a common mistake is to claim initial repairs or capital improvements as an immediate deduction.
“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.”
Adrian says a better approach could be to claim depreciation on this expenditure as a capital works deduction over 40 years.
2. Prepay interest
If you are expecting that you will have a lower income next year (due to factors such as maternity leave or redundancy), Adrian suggests not prepaying interest for up to 12 months in advance before year end on your rental property, thereby reduce your higher income.
3. Depreciation schedule
If your investment property was built after 18 July 1985 Adrian recommends organising a depreciation schedule from a quantity surveyor.
“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 see your property
What about claiming trips to see your investment? The old wives’ tale of claiming two trips per year is hogwash, says Adrian.
“You can claim as many trips as you like so long as the purpose of the trip is to genuinely inspect the property and you don’t tag a family holiday onto it.’
5. PAYG Withholding Variation
If you’re negatively gearing a property and have struggled with cash flow in the last year, Adrian’s tip is to consider a “mini-tax return” called a PAYG Withholding Variation Application, and have less tax taken out of each pay packet.
6. Foreign investment properties
The ATO is cracking down on taxpayers with properties overseas as they get more data each year from other tax jurisdictions, cautions Adrian.
“Make sure that you disclose any income that you receive as you are taxed on worldwide income as an Australian tax resident. These properties can be potentially ‘negatively geared’ as you can claim deductions such as interest, repairs, rates and insurance on these properties.”
7. Keep your receipts
Each year the ATO makes contact with thousands of taxpayers who own rental properties to more closely inspect their claims.
“With the ATO increasing their audit activity this year yet again it is important that you can explain and justify your claim,” says Adrian,
“The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!”
8. Minimise capital gains tax (CGT)
If you are trying to sell your property and cement a nice capital gain, consider 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 reduce CGT by half!”
9. Get a great accountant
Adrian’s final tip is to surround yourself with top people. It’s one we hear again and again – and the results are clear.
“Great accountants are like surveyors … they know where the boundaries are.”
(And their fees are tax deductible).
This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances before acting.Source: 9 Tax tips for property investors