The tax time checklist for investment property owners

June 08, 2016
Melinda Halloran

Tax time has a habit of creeping up on us. By planning ahead this year, you will put yourself in the best position to get the return you deserve. 

Investment properties have a number of advantages come tax time. Get on top of these before June 30 and you’ll avoid a frantic scramble to have everything ready for your accountant. From expense claims to depreciation, here’s your to-do list for this month.

1. Calculate your expenses

There are a number of expenses you can claim from your investment property. If you haven’t been keeping track of these, contact your property manager for any receipts they may have. Then, it’s a matter of going through your records and pulling the rest together.

You can claim the following expenses:

  • Advertising fees for new tenants
  • Property management costs
  • Repairs, maintenance, pest control, cleaning and gardening
  • Building, contents, public liability and landlord insurances
  • Body corporate fees
  • Council and water rates
  • Land tax
  • Capital works
  • Loan costs (these include valuation and loan establishment fees and are generally claimed over a period of five years)
  • Interest payments
  • Ongoing loan fees
  • Stationery, phone and bookkeeping costs 
  • Travel relating to the property
  • Any electricity and gas bills you incur
  • Depreciation of assets

2. Know what you can’t claim

There’s nothing worse than getting your hopes up for a big deduction, only to have your accountant tell you it’s not possible.

Expenses you can’t claim include the costs of selling or purchasing the property, utilities paid for by tenants and borrowing costs for personal assets purchased using the equity from the investment property. You cannot claim GST credits, but you are entitled to claim the total amount of a deducible expense with GST included.

Be mindful of the difference between repairs and improvements to a property. While you can claim repairs and maintenance as immediate deductions, improvements such as substantial renovations are different. Instead, these are costs that you can generally claim at a rate of 2.5% for 40 years after the date of completion. Find out more on the Australian Tax Office website.

3. Organise a depreciation schedule

Claiming depreciation is one of the biggest savings property investors can make on their tax. To claim depreciation on your investment property, you’ll need to have a depreciation schedule completed by a qualified quantity surveyor. 

Many property investors aren’t aware that they only need to have this done once. So if you already have a depreciation schedule, you won’t need to organise one before tax time. If you have recently purchased an investment property and you don’t have a depreciation schedule, you’ll need to have this done before you meet with your accountant. 

There are two types of depreciation schedules: one for the building structure and one for plant and equipment (this is for removable items such as dishwashers, carpets, ovens, etc.). If your investment property was built after 1985, you can claim depreciation on both the building and plant and equipment. For properties built before this, you can only claim plant and equipment.

A depreciation schedule includes:

  • All building allowance costs or all plant and equipment costs
  • The amount you can claim for each item
  • The estimated lifespan of each item
  • A list of what you can claim at the end of a financial year

The cost of having a depreciation schedule prepared can also be claimed as an expense.

4. Look ahead to next year

If you know your taxable income will be lower next financial year, consider paying some extra expenses before June 30 to maximise your deductions for this year. You might organise extra repairs that will need to be undertaken soon or prepay a year of interest on your loan (this can only be done with fixed-rate loans).

While you are doing this, it’s a great opportunity to set your financial goals for the next 12 months and beyond. From saving for a new home to starting your own business or taking a holiday, it’s always important to have a goal to keep you motivated. 

If you feel that the tax benefits of owning an investment property would be beneficial to you, I am happy to provide further information on how to purchase a property and the things you need to be mindful of before doing so.

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Luke Cashin
0419 733 862
Your Garden City Mortgage Broker, Brisbane

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Posted in: Property investment

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