Investing in Australian property has boomed over the past decade, in part due to the generous tax claims property investors can make. We have picked three tax deductions on property investment that, if properly claimed, can help investors reduce their overall tax liability come tax time.
One of the lesser-known deductions for property investors is travel. Just like an employee can claim deductions on any travel they undertake as part of their job (for example, driving from one worksite to another), a landlord can do the same if the travel relates to their property investment.
Travel deductions are not just limited to travelling to an investor’s property, something which is usually done with a property manager. Travel to places relating to the investment in the property, such as to a property manager’s office or to see a tradesman contracted to make repairs on the property, are also deductible.
For many property investors, depreciation is often a deduction that is not properly understood and can have a major effect on one’s tax status depending on the amount of depreciation claimed. Depreciation is the fall in value of assets in a rental property, and must be used when claiming a deduction for assets that are valued at over $300.
Investment properties that have recently had major refurbishments undertaken can result in huge deductions for depreciation, and are attractive to some property investors for that reason. For these types of properties, an expert quantity surveyor can prepare an in-depth depreciation schedule detailing all depreciable items, their effective life and the percentage of which they should be depreciated every financial year.
Perhaps the most well-known investment property deduction in the Australian rental market is the interest paid on loans. Loan interest is usually the largest rental property deduction claimed by property investors who bankroll their investment by obtaining a loan from a financial institution.
The interest a property investor can claim is not only limited to the bank loan they obtain to purchase a property, however. Loans that investors take out in order to make repairs to their investment properties or to purchase depreciating assets (such as a new oven) can also be claimed as deductions on one’s tax return.
Capital Gains – Be Prepared
Investors who sell their investment property at a profit make what is known as a capital gain, the gain/profit made on the capital investment that was their property. As capital gains are added onto one’s total taxable income in the financial year it is sold, their overall tax liability is likely to be significant.
This is particularly the case in areas like Sydney and Melbourne, where it is not unheard of for investors to make a six-figure capital gain on the sale of an investment property. Before celebrating such a great achievement, investors should prepare and budget for the potential for a high tax liability that is likely to result from a gain on sale.
if you have any questions relating to your investment property or if you are thinking of buying an investment property contact us for an appointment.