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 alsotax deductible.
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 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.
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.
If you’re unsure of what you may be entitled to claim, please contact our team at Lee and Lee.
Susan Flux, Brisbane
Since that time I known Tony and his team at Lee and Lee, they have provided me with outstanding advice and services regarding my personal, family and especially my SMSF borrowing setup for wealth creation and tax reduction strategies that have since led to financial independence.
I now very clear and feel confident on my future financial goals and taxation strategies and know they can be achieved with Tony's expert and professional help.
Shukri Barbara, Property Tax Specialists Sydney
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Tony has the strategies which are helping me legally minimise tax. He has helped me in my personal development and wealth creation to build a multimillion dollar property portfolio.
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