We asked Tyron Hyde of Washington Brown, one of Australia’s leading quantity surveying firms, to share his tips on making the most of the tax deductions with your investment property.
1. Spread your deductions throughout the year
Did you know that if you are claiming depreciation and deductions on your investment property, you could simply pay less tax throughout the year instead of waiting until June 30 to make your claim? If you have PAYG tax deducted from your monthly salary, fill in an income tax withholding variation form. This gives you more every month to put towards interest payments and other expenses.
2. Make sure you claim everything
As long as you actually incur the following expenses, you can claim them as deductions. So make sure you keep all those receipts and invoices.
3. Costs of buying
• Legal expenses (excluding acquisition costs and borrowing costs)
• Quantity surveyor’s fees
4. Costs of borrowing
• Bank charges
• Interest on loans
• Mortgage discharge expenses
5. Costs of leasing
• Advertising for tenants
• Lease document expenses – preparation, registration, stamp duty
• Managing agent’s fees and commission
• Travel and car expenses – rent collection, property inspection and maintenance
6. Costs of ownership
• Body corporate fees and charges
• Council rates
• Electricity and gas
• In-house audio/video service charges
• Land Tax
• Secretarial and bookkeeping fees
• Stationery and postage
• Tax-related expenses
• Water charges
7. Maintenance costs
• Gardening and lawn mowing
• Pest control
• Repairs and maintenance
• Security patrol fees
• Servicing costs – for example, servicing a water heater
• Telephone calls and rental
8. Understand your depreciation allowance
If you have an older investment property, your capital allowance and tax depreciation report covers both the capital works allowance and the depreciation of plant and equipment. Even if your property is too old to claim the capital works allowance for the building structure, you may be able to claim the plant and equipment allowance.
Here are just a few examples of plant and equipment – if they are in your investment property, they can be depreciated over their effective lives:
• hot water service
• air conditioner
• ceiling fans
• floating timber floors
• blinds and curtains
• oven and rangehood
• smoke alarms
• security systems
• washing machine and dryer
• freestanding spa
9. Carry out repairs now
Thinking of doing some repairs or maintenance? Get it done before June 30, and claim the cost this financial year.
10. Is it repair or an improvement?
Generally improvements are depreciated but repairs are deducted. For example, replacing a broken window or fixing an electrical appliance is a repair. But remodelling the bathroom or replacing the kitchen would be an improvement – you end up with a better property.
10. Specialist advice pays for itself
A specialist tax depreciation firm can carry out a depreciation schedule of your investment property, ensuring you claim everything you are entitled to. The cost of this is also fully tax deductible.