Tax tips for Investment Property
Tax tips for Investment Property
Author: Malik Hassan
June 28, 2021 · 5 min read
If you are a property investor, you are entitled to a wide range of taxation benefits. However, many property investors do not fully take advantage of the full range of deductions that are made available to them.
Whilst many investors are often aware of write-offs such as deductions for their loans, council rates, property management fees, as well as repairs and maintenance costs, depreciation is often an overlooked factor.
Our taxation experts at Immunity Accounting have outlined below everything you need to know as a property investor about, ranging from depreciation claims as well as deductions you are entitled to.
What are you entitled to claim?
- Interest paid on the loan used to purchase the property is a deduction.
- Repairs made to the property during the period it is leased are deductible but generally not repairs carried out within the first 12 months of owning the property (these can be used to reduce a capital gain on disposal).
- Improvements you make to the property are not deductible in full. They need to be depreciated and claimed over their effective life.
Other claimable deductions can include:
- advertising for tenants
- bank charges
- body corporate fees
- council rates
- electricity and gas
- lawn mowing
- in-house audio/video service charges
- land tax
- legal expenses releases etc.
- lease costs
- pest control
- mortgage discharge expenses
- property agent’s fees
- quantity surveyor’s fees
- water charges
- lenders mortgage insurance (usually written off over the shorter of the term of the loan or 5 years)
What is property depreciation?
As a building gets older, there are many elements of its structure that begin to depreciate. This also includes assets within the property, as long as you personally own them.
The Australian Taxation Office (ATO) allows property investors that generate an income from their properties to claim a depreciation tax deduction on these assets.
All depreciation deductions are separated into two distinct categories:
- Division 43: Capital works allowance
- Division 40: Plant and equipment depreciation
Division 43: Capital works allowance
Division 43 capital works allowance relates to claims for wear and tear that pertains to the structure of the property, or any fixed items within that property. This includes items such as walls, doors, kitchen cupboards, bathroom fixtures, and more.
The vast majority of properties constructed after the 15th of September 1987 will entitle its owner to capital works deductions in some form. These deductions can be claimed at a flat 2.5% per year, for up to forty years in total.
For buildings constructed prior to 1987, a range of deductions is still available. Reach out to our Immunity Accounting tax professionals to find out how to best judge the nature of these deductions.
Division 40: Plant and equipment depreciation
Division 40 plant and equipment depreciation can be claimed for more easily removed fixtures and fittings within the property. There are over six thousand different items outlined by the ATO that this can pertain to, such as carpets, blinds, air conditions, and much more.
Each item is given its own effective life period and depreciation rate, as outlined by the ATO directly.
What is needed for completing a tax depreciation schedule?
We have partnered with Duo Tax to make this process go smoothly. Duo Tax is Australia’s Highest-Rated Quantity Surveyors for Property Tax Depreciation. All we need are simple details such as the name that will appear on your depreciation schedule, the property address, purchase information, and your property manager information. They will then set a date with you to inspect all items that must be depreciated.
If you are a property investor and want to begin this process, do not hesitate to reach out to us or Duo Tax this coming Tax season.
IMMUNITY ACCOUNTING CAN HELP
To find out more speak to one of our tax consultants by clicking this link to book an appointment online or call 1300 514 191.