Tax tips for property investors

Property investors can access a wide range of tax deductions and items subject to depreciation for their rental property yet many miss out on unknown tax breaks, foregoing an average of $20,000 a year on a $1 million house.

Here are five ways to maximise your tax deductions while complying with the tax office:

Use a quantity surveyor

Registered quantity surveyors can establish the value of purchased items and building construction costs by preparing depreciation schedules to maximise an investor’s claim.

Items as diverse as kitchen equipment, bathroom fittings, outdoor furniture, air conditioning and swimming pools are all legitimate claims. A quantity surveyor will ensure valuations of the items in the building are at market value, avoiding the need to explain any valuations that are higher than expected to the ATO.

The cost of using a quantity surveyor is also tax deductible.

Apportion expenses

It is common for investors to bundle a mix of properties under one single loan, i.e. the family home and a rental property may be funded by the same mortgage and expenses apportioned accordingly. However, having separate loans can increase deductions as the non-deductible debt can be paid down or even better linked to an offset account, with the deductible loan having full interest paid and claimed.

Claim travel expenses

Travel to your rental property for management purposes can be claimed as an expense. If you combine your property inspection with a holiday, the tax office will require you to apportion the expenses between non-deductible private expenses and the costs that can be claimed.

Immediate write-offs

An immediate write-off applies to items worth less than $300 and can be claimed in the current income year. Items such as garden gnomes, kitchen cutlery, ironing boards and irons are easily forgotten and all can be written off in the first year.

Construction costs

Construction costs can generally be  depreciated at 2.5 per cent each year over 40 years for residential properties built after July 1985. This entitlement passes from one owner to the next whenever the property is sold. A quantity surveyor can provide an estimate if information is not available.

 Depreciation

Many high value household items are now deducted using the “diminishing value method”, which means the most depreciation happens in the first few years. For example, ducted heating worth $4941 would have a first-year deduction of $493, totalling $2022 over the first five years.

Adding items such as solar lights, garbage bins, garden sheds, intercoms systems and closed circuit television systems to a low-value pool can open up ways to depreciate items at a higher rate, therefore, increasing immediate returns.

This publication is general information for guidance only, and professional advice should be obtained before acting  on any information contained herein. LBAS Pty Ltd "Tax Matters"