taxation
When doing their tax return, property investors should be wary of rules surrounding depreciation. Image – Canva.
  • Many property investors lose hundreds or thousands per year due to not deducting items correctly
  • Buildings can be depreciated, along with fixtures and furnishings
  • Strata property can be deducted too, such as common areas and amenities

Property expert Mark Hay has suggested it is a good time to assess your current taxable income.

As part of this, he has advised of several hints that could help property investors save hundreds or thousands of dollars through simple and legitimate tax deductions which can often be overlooked…

Depreciation

Check you are claiming all areas of depreciation you are eligible to claim, such as buildings, which can be depreciated at between 2.5% and 4% per annum depending on certain criteria. Fixtures and fittings have a varying rate of depreciation, which in some instances can be deductible by up to 100% in the year of acquisition.

If you don’t have a current depreciation schedule for your property, you should contact a quantity surveyor to compile one for you.

Millions of dollars annually goes unclaimed from investors by not claiming depreciation on their investment property.

Refurbishment/Redecorations

Dependent on how long you have owned your investment property for, and to what extent the refurbishment can be attributed to tenant damage and use, it may be possible to claim part of a refurbishment as direct repairs and maintenance. Therefore, this represents a 100% reduction in the year of spending.

Strata Property

Many strata owners are missing out on depreciating common areas over 40 years at 2.5% – which can add up significantly.

This includes areas such as pools, lifts and common recreational areas.

Interest payments

Under current tax laws, it is permissible to pay twelve months interest in advance on your property investment loan, and actively claim the deduction. Conditions do apply – for example the property must be owned in private names, as opposed to companies or trust schemes.

If utilising such a method, be careful that the loan facility has been set up with the condition that the lending institution terms and conditions actually permit pre-payment arrangements.

As a warning, if the loan hasn’t been set up correctly and you are subject to a tax audit, the claim for prepayment could be disallowed. Make sure you check with your accountant accordingly.

Capital Gains

If you are realising a specific capital gain in this current financial year it may be wise to evaluate any penny dreadful stocks or inferior property investments. As it may indeed be appropriate to realise the loss on that particular investment and counteract the gain you are receiving.

It is important to remember capital gains tax is payable in the year the contract is written, with the amount added to your taxable income in the year you sell. Therefore, you can alter the amount of tax paid by simply timing the sale in a year of less income or the same year as a loss.

People quite often misinterpret this ruling and work on the day of settlement or the contract going unconditional.

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Before making any investment decisions, please do your own independent research, taking into account your own situation. This article does not purport to provide financial or investment advice. See our Terms of Use.

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