Nine tax tips for rental property investors

Jun 22, 2014

Over 1.88 million people claimed more than $41.8 billion in rental deductions in their tax return last year.  With June 30 rapidly approaching, it is time to do some urgent tax planning.  Here are some excellent tips from Dr Adrian Raftery, a senior lecturer at Deakin University and author of 101 Ways to Save Money on Your Tax - Legally! 2014-2015 edition (Wrightbooks, June 2014, AU$24.95), for you to action and maximise your tax refund from your rental property this year.  

1. Initial repairs

A common mistake is to claim initial repairs or capital improvements as an immediate deduction.  Initial repairs to rectify damage, defects or deterioration that existed at the time of purchasing a property are generally considered capital in nature and not deductible, even if you carried them out to make the property suitable for renting.  Depreciation could be claimed on this expenditure as a capital works deduction over 40 years.

2. Prepay interest

If you are expecting that you will have a lower income next year (due to factors such as maternity leave or redundancy) then why not prepay interest for up to 12 months in advance before year end on your rental property and reduce your higher income this year. 

3. Depreciation schedule

If your investment property was built after 18 July 1985 then it is definitely worthwhile organising a depreciation schedule from a quantity surveyor.  You should be able to recoup their fee in your first tax return as deductions can be in the thousands each year.   

4. Travel to see your property

The old wives’ tale of claiming two trips per year is hogwash.  You can claim as many trips as you like so long as the purpose of the trip is to genuinely inspect the property and you don’t tag a family holiday onto it.

 5. PAYG Withholding Variation

Negatively gearing a property and struggled with cash flow over the last 12 months? Don’t want to wait all year for a juicy refund again next year?  Then why not arrange a “mini-tax return” called a PAYG Withholding Variation Application and have less tax taken out of each pay packet.  

6. Foreign investment properties

The ATO is also cracking down on taxpayers with properties overseas as they get more data each year from other tax jurisdictions.  Make sure that you disclose any income that you receive as you are taxed on worldwide income as an Australian tax resident.  These properties can be potentially “negatively geared” as you can claim deductions such as interest, repairs, rates and insurance on these properties.

7. Keep your receipts

Each year the ATO makes contact with many thousands of taxpayers with rental properties.  With the ATO increasing their audit activity this year yet again it is important that you can explain and justify your claim.  The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!

8. Minimise capital gains tax (CGT)

If you are trying to sell your property and about crystallising a nice capital gain or two then consider exchanging contracts after 1 July to defer tax for another year.  And remember that if you hold your investment property for more than 12 months you reduce CGT by half.

9. Get a great accountant

Avoid paying too much in tax or leaving yourself to a visit from the taxman.  Great accountants are like surveyors ... they know where the boundaries are.  And their fees are tax deductible!

This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.

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These tips were provided by Mr Taxman, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally! 2014-2015 edition(Wrightbooks, June 2014, AU$24.95).

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  • "Definitely can claim the trips to customers and should be able to claim the trips to the observatory when you have the bulky equipment for the repairs. I would be curious to know how much you are at..."

    By: Mr Taxman at Dec 20, 2020 11:08PM

    Post: Claiming car expenses

  • "Hi mrtaxman, I am employed at my home office, I am usually required daily to attend our remote mountain top observatory. I need to check overnight correspondence, see if I will need supplies from..."

    By: Carl at Dec 18, 2020 1:40AM

    Post: Claiming car expenses

  • "If you operate under the logbook method then the fuel wil form part of your total fuel bill for the year which you then apply the business-related percentage. Doesn't matter if didn't get paid from..."

    By: Mr Taxman at Dec 01, 2020 6:44AM

    Post: Claiming car expenses

  • "I am running a small business as a sole trader. I attended some work related training the other day but forgot to pay for the fuel required to travel to and from this training with my business..."

    By: Liz Evans at Nov 30, 2020 4:22AM

    Post: Claiming car expenses

  • "I separate everything mate, when it comes to the taxman, so the numbers you see on the RHS of your Statement are not inclusive of your Swaps or Commissions. I have a P/L and then I have P/L of..."

    By: Greg Croot at Nov 23, 2020 11:26AM

    Post: Foreign currency trading