Nine tax tips for rental property investors

Over 1.88 million people claimed more  than $41.8 billion in rental deductions in their tax return last year. Here are some excellent tips from from Mr Taxman,  Dr Adrian Raftery, a senior lecturer at Deakin University and author of 101 Ways  to Save Money on Your Tax – Legally!  2014-2015 edition.

1. Initial repairs
   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 you carried them out to make the property suitable for renting.  Depreciation could be claimed 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) then why not prepay interest for up to 12 months in advance before year end on your rental property and reduce your higher income  this year.
3. Depreciation schedule
   If your investment property was built after 18 July 1985 then it is definitely worthwhile 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
   The old wives’ tale of claiming two trips per year is hogwash.  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
   Negatively gearing a property and struggled with cash flow over the last 12 months? Don’t want to wait all year for a juicy refund again next year?  Then why not arrange 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 also cracking down on taxpayers with properties overseas as they get more data each year from other tax jurisdictions.  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 many thousands of taxpayers with rental properties.  With the ATO increasing their audit activity this  year yet again it is important that  you can explain and justify your claim.  The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping  those dockets!
8. Get a great accountant
   Avoid paying too much in tax or leaving yourself to a visit from the taxman.  Great accountants are like surveyors … they know where the boundaries are.  And their fees are tax deductible!
9. Minimise capital  gains tax (CGT)
   If you are trying to sell your property and about crystallising a nice capital gain or two then 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.

101 Ways to Save Money on Your Tax – Legally! 2014-2015 edition  (Wrightbooks, June 2014, AU$24.95)

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.