Over the past 30 years, property investment in Australia has dramatically increased. Due to interest rates being at an all-time low, people have been taking advantage of these and buying property left right and centre. Whilst this is a good way to make use of spare cash, it is so important to ensure that you maximise your tax deductions on your investment property. This article details 4 simple tips to help you save big on tax with your investment property.
1. Have a great system to record expenses
To be eligible to claim tax deductions, you need to keep track of your receipts and bank statements.
The ATO requires you to keep records of:
- Date and cost of purchasing your property
- Rent or rent-related income to report in your income tax return
- Expenses you want to claim deductions for. This includes the supplier name, expense amount, nature of goods and services and the date of the expense
If your rental property is complex with a large volume of transactions, we strongly recommend using Xero for your record keeping. Especially if your investment property is held in a trust.
Xero combined with an application whose sole purpose is to capture invoices (like Dext) ensures that nothing is missed and there will be no confusion about expenses paid.
2. Know the difference between capital works, repairs and maintenance.
All repairs, maintenance and asset replacements are not instantly deductible!
The ATO is very specific in what is instantly deductible when it comes to investment properties. When filing your tax return, you’ll need to categorise these expenses appropriately to ensure you are compliant with tax legislation. A quick summary of the three is below:
- If you’re replacing something that is worn out, damaged or broken by your tenants, this will most likely be considered a repair.
- If you’re preventing or fixing an item that has deteriorated in quality since renting out your investment property, this this will most likely be considered maintenance.
- If you’re replacing an entire structure that is partially damaged or adding a new structure (such as a carport), this will most likely be considered a capital works.
These are not as black and white as they seem, as sometimes you can be replacing a component of an asset which leads to it being fully deductible (i.e. a garage door may be considered a component of the garage, as opposed to an individual asset in itself).
3. Track your depreciation and capital works schedule
A depreciation schedule is a record of the property’s capital assets valued over $300, and it outlines how much you can claim in depreciation each year.
Similarly, you can claim capital works deductions over several years for certain construction costs. This means that even work done building your investment property can become an income tax deduction.
To create a depreciation & capital works schedule by yourself would take you days. Which is why it is great to engage a Quantity Surveying company. They specialise in depreciation schedules, and they will not do a schedule unless it is determined that it is economically viable to do so.
4. Engage a great property manager
Having a great property manager will ensure that you are paid on time, ensure that tenants are happy and will look to maximise your tax opportunities where possible. Along with this, they will provide an annual report summarising the income and expenses they have been responsible for. This contributes to great record keeping, as well as ensuring that you don’t miss a deduction. Property management fees are also a tax deduction.
The team at Link Living are great at this, working closely with Link Advisors to ensure that no tax opportunities are missed.
If you think that you could be missing out on some great tax deductions on your rental property, contact Link Advisors and we can determine if you are missing out on some serious tax savings.