5 ways property investors can save at tax time

• By global standards, Australia has generous tax deductions for property
• 8% of Australians have at least one investment property
• Keeping full records and understanding depreciation are among the main pieces of advice

As the end of the financial year draws closer – and therefore tax season – a well-known property investor in Sydney has spoken about how property investors can save time, stress and money when finalising property expenses this year.

The advice is timely given the Australian Tax Office (ATO) is specifically cracking down on some property-related expenses this year.

Author and Aus Property Professionals’ Founder and Managing Director, Lloyd Edge, noted that while Australia has very generous tax deductions for property investors, and about 8% of Australians own an investment property, it does treat those investments like businesses.

“It’s important that property investors do their research and get their finances in order ahead of tax time, to avoid any potential pitfalls,” said Mr Edge.

An effective tax accountant should be part of every property investor’s “dream team” he added, noting that investors should ideally be consulting their accountant throughout their property journey to achieve the best financial outcome.

In light of this, Mr Edge, who is also the author of Buy Now; The Ultimate Guide to Owning and Investing in Property, has provided five ways property investors can save at tax time.

5 ways property investors can save at tax time

1. Keep records of everything.

If you invest in a rental property, all records should be keept from the start. These records are needed to calculate expenses that are counted as deduction, and also so you can declare all rental income in your tac return.

“If you’re claiming expenses related to items you’ve purchased for the property, you’ll need receipts for those,” he added.

“Your tax accountant should be across all the finer details. Your property manager also plays an important role at tax time and should have provided you with all the relevant documents for your property.

Lloyd Edge, Aus Property Professionals

2. Complete property maintenance before each EOFY

Mr Edge advises carrying out all necessary maintenance work and repairs by the end of the fiscal year, as it can be claimed sooner. After all, if you miss the 30 June deadline you have to wait 12 months to claim the costs.

3. Declare all your rental income – including bonds

It is not surprising that all income generated needs to be declared, however, rental bond money you are entitled to retain needs to be declared. An example of this is if a tenant defaults on rent or you incur maintenance costs and receive insurance payouts as result.

4. Work out exactly what you can and can’t claim

Not claiming enough or the rent expenses can cost property owners significant amounts on their tax returns. Depending on individual circumstances, expenses that can be claimed at tax time include

• Home loan interest
• Negative gearing
• Advertising
• Repairs and maintenance

Other deductions you might be able to claim includes depreciating assets (see below point), property management and agent fees, insurance, strata fees, council fees, water bills, land tax, gardening, certain legal fees, certain utilities and travel expenses.

Also, it is important to note that there are some items you can claim in the financial year, and others are capital expenses – expenses you incur when purchasing or selling an investment property,” added Mr Edge.

“Capital expenses, including conveyancing costs, valuation fees and stamp duty, can help you reduce the amount of capital gains tax you pay when you sell your property.”

5. Understand how depreciation can work for you

All investors should have a depreciation schedule for their property/properties. This is a report that outlines the decline in value of certain assets, such as carpets, appliances and equipment.

“Appoint a qualified quantity surveyor to produce a depreciation schedule for each property you buy,” said Mr Edge.

“You can claim depreciation over a period of up to 40 years. As your portfolio grows, make sure you are continuously getting those reports- especially for duplexes, as you can get significant depreciation since there are two of everything.”

In conclusion, Mr Edge reiterated that while it is important to keep taxed in mind when purchasing property, an investor must ensure that are acquiring a property for the right reasons.

“I don’t advocate buying an investment property or building a property just because you want to claim depreciation,” he said.

“Tax deductions are one positive outcome, not an investment strategy or reason to invest.

“But if you’re leaving money on the table, you’re disadvantaging yourself. You can get better returns on newer properties, which typically need less maintenance. It’s important to think about that when investing.”

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