Are you claiming all you’re entitled to at tax time? Find out what tax deductions you can claim on an investment property and maximise your deductions this June 30.
All owners of income-producing properties are entitled to claim deductions for the period a property is rented or available for rent. Here are the tax deductions you can claim:
- Rates and management fees
- Repairs and maintenance
- Property depreciation
- Ensure you claim your entitlements
- Be aware of CGT
Rates and management fees
Investors can claim immediate deductions for expenses involved in the management of their investment property, including:
- property management fees
- body corporate fees and charges
- accounting fees
- council rates
- land tax
- advertising for tenants
- insurances including public liability, building, contents and landlord
Repairs and maintenance
Repairs refers to work completed to fix any damage to an investment property, while maintenance is work completed to prevent deterioration. Repairs and maintenance can be claimed as an immediate deduction with your Accountant by providing relevant receipts.
If you complete any renovations or repairs where you improve the value of the asset beyond its original state at the time of purchase, these items will need to be depreciated as either capital works or plant and equipment depreciation. To learn more, read our Maverick article regarding repairs and maintenance and capital improvements.
Property depreciation is generally the second biggest tax deduction after interest, though it’s often missed by investors.
Depreciation is considered a non-cash deduction, meaning an investor doesn’t need to spend any money to be eligible to make a claim. It sounds too good to be true, but property depreciation can make a big difference to an investor’s cash flow.
Depreciation has two categories:
- Capital works deduction
Capital works deductions (or Division 43) refers to the tax deductions for the building’s structure and items considered to be permanently fixed to the property such as kitchen cupboards, doors and sinks. As a rule, residential homes in which construction commenced after 15th September 1987 and commercial properties in which construction commenced after 20th July 1982 are eligible for the capital works deductions. Though deductions for commercial properties will vary based on the type, age and historical construction cost of the property.
- Plant and equipment assets
Plant and equipment assets are identified as items which are easily removable from the property. These items have a limited effective life as set by the tax commissioner and can generally be depreciated over time. Examples include carpet, hot water systems and blinds. It’s important to be aware of restrictions to claiming depreciation on previously used plant and equipment found in second-hand residential properties. Read our BMT Insider article on plant and equipment deductions and legislation for more.
Any income-producing property may be eligible for thousands of dollars in depreciation deductions. It’s important to get a tax depreciation schedule to ensure you claim the biggest tax refund possible. Tax Ruling 97/25 states Quantity Surveyors such as BMT Tax Depreciation are one of the only professions qualified to estimate construction costs for depreciation.
Ensure you claim your entitlements
A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property to ensure you maximise your cash flow. During FY 2017/18, we found residential property investors an average first year deduction of almost $9,000.
Our depreciation schedules last for the forty-year life of an investment property and can be claimed in your tax return.
Be aware of CGT
It’s also important to be aware of the Capital Gains Tax (CGT) implications of owning an investment property should you decide to sell the property or if you are removing and scrapping any of the plant and equipment assets contained.
There are a few CGT exemptions which may apply to investment properties. To learn more, click here.
By choosing a BMT Tax Depreciation Schedule, you can be assured you are choosing a report which covers you for all scenarios, including providing a capital loss depreciation schedule when required. We also recommend speaking with your Accountant for advice regarding CGT.