Tax Deductions – what are you leaving on the table?

It’s that time of year again where you are either rubbing your hands together in anticipation of a nice payment from the ATO or you are shaking your head wondering why you hadn’t anticipated an amount payable to the ATO and now you need to source the capital to pay!

Tax planning is a key reason why seeking the services of a registered tax practitioner like an accountant or financial planner can save you the frustration you may be feeling right now….

Do you remember this famous quote?

“If anybody in this country doesn’t minimise their tax they want their head read. As a government I can tell you you’re not spending it that well that we should be paying extra."
Kerry Packer 1991

Do you minimise tax or do you avoid paying tax? These are two very different concepts.

Avoiding tax is not only illegal but it also sidesteps the social responsibility we all share to provide services for the community like Police, Hospitals and aid to those in need etc.

Minimising tax on the other hand is encouraged by the Government because most allowable tax deductions are aimed at rewarding the effort required in contributing to the community either through investing or working. We can argue all day long about providing tax benefits or if they are even necessary but one thing we can’t argue over and that is the fact they are legal.

I think it’s important to understand that point. The ATO willingly allows tax deductions from taxable entities for allowable reasons. Therefore, they agree with tax payers minimising their tax burden.

So, my question to you, the investor, is simple. How prudent are you in minimising your tax to help reduce the cost of holding your investment?

If you have property investments then you may be eligible to claim certain tax deductions related to the expenses you incur whilst owning and maintaining each investment property.  Naturally, any rental profit you make will be subject to tax so claiming the available tax deductions can reduce your rental profit and in the end, reduce your taxable income. 

Perhaps a quick checklist to ensure that you are claiming all these items may help, remembering we don’t invest for the tax deductions but in the absence of growth, eliminating tax payable on from your rental income by property is a very prudent exercise.

These are just some of the available investment property tax deductions:  

Advertising

The cost of advertising for tenants is tax deductible if your property is available for rent.

Bank fees, interest and charges

Any bank charges on your loan account, both monthly and annually, are tax deductible.

Only the interest component directly related to your property is tax deductible. If you are paying principal and interest on your loan then you will need to calculate the interest component for the year. Interest paid before the end of the financial year is generally tax deductible too. To maximise your tax deductions in the current tax year, you can choose to prepay your interest expenses before 30 June.

Borrowing expenses, such as loan establishment fees, title search fees, are generally tax deductible.   

Body corporate fees

These fees are charged on a quarterly basis usually, and cover the costs of maintaining the common areas of your building.

Bookkeeping  

Depending on how complex your investment portfolio is, you may need some help tracking the income and expenses, as well as filing documents, relevant to the running of your investment property. These fees are tax deductible.

Construction expenditure

You can claim a tax deduction for construction expenditure which is spread over 25 or 40 years depending on the type of construction and the year in which the construction was completed. The construction costs of a newly built property are deductible over 40 years. To maximise your tax deductions you can obtain a quantity surveyor’s report which will list the year of construction, the construction costs, and the deductible amount each year.  

Council rates

Council rates are imposed on landowners to help fund the cost of community infrastructure and services to the local municipality and all payments are tax deductible.

Depreciation Schedules

To maximise your tax deductions you can obtain a quantity surveyor’s report which shows, in detail, the value of the deduction to which you are entitled based on the assets you own in the investment property. Depreciating assets produce a partial tax deduction as these assets decline in value over time, usually over more than one year. Depreciating assets commonly found in residential rental properties include: air conditioning units, removable floor coverings, window curtains and blinds, dishwashers, furniture, heaters, hot water systems, refrigerators and freezers, stoves, cook tops and range hoods, swimming pool filtration and cleaning systems, television sets and washing machines.

Garden maintenance

Paying a gardener to trim the hedges, lay fertiliser, or mow the lawn is tax deductible. Landscaping a garden, however, isn’t an outright tax deduction. Landscaping is deductible over more than one year.

Insurance

Insurance cover is tax deductible and can protect you against circumstances including loss of rent, rent default, theft by a tenant, building damage and public liability claims. Landlord Insurance and Building Insurance is a must.

Maintenance and Repairs

A repair is generally tax deductible. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. Renovations, improvements, replacements and extensions are generally deductible over more than one year.

Pest control

If you pay for your investment property to be sprayed or fumigated by a pest controller, then you are generally entitled to a tax deduction for the cost.
Postage

Remember to keep a record of all your postage expenses for the financial year. Don’t get rid of your records as this is an often overlooked tax deduction by investment property owners.

Property Management

A Property Manager charges fees for maintaining a property on your behalf. The property agent lists their monthly charges in the property agent’s summary. The charges for the year-end financial statement, reference-check fees, leasing fees and monthly rental statement fees are all tax deductible. You will receive the net rental income after the property agent deducts their monthly fee.

Quantity surveyor’s fees

A great way to obtain a tax deduction, for the decline in value of the assets in your investment property, is by obtaining a quantity surveyor’s report. The report lists the items that you own in your investment property and the depreciation rate of each item. The cost of a quantity surveyor’s report is also tax deductible.

Telephone calls and rental

Telephone calls directly related to the running of your investment property can also be tax deductible.

Tax and Accounting related expenses                                                                                                         

Land tax is tax deductible. Land tax is a tax levied on the owners of land and it is based on the value of land. Finally, the cost of obtaining tax advice from a registered tax agent, tax preparation fees and accounting charges are also tax deductible.

As you can see, there are quite a few legitimate taxation deductions for Property investors and we hope you are making use of them. Of course this is not the complete list of every available deduction and we encourage you to seek professional advice for your own circumstances.

While there are huge differences between the Packer family’s corporate empire and your Investment property portfolio, the ability to legally minimise taxes is very much the same.

With that in mind, we believe you should be working with a qualified professional so you can maximise the potential benefit on your tax return and not leave anything on the table. 

Why not make an appointment today to see one of our Financial Planners and get a clear picture of the impact tax deductions can have on your financial future.

To find our about how the Investors Direct Financial Planning team can help you, contact us at invest@investorsdirect.com.au

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