Essential tax tips for property investors
With tax time upon us, here are some handy tips to help minimise your taxable income and potentially save you thousands of dollars.
It’s important for all property investors to know what they can claim as a tax deduction to ensure their income, and subsequently personal wealth, are maximised. Knowing what you’re entitled to claim could save you hundreds or even thousands of dollars.
Here are some basic property investment tax tips to help maximise your returns this financial year.
Property investors can claim “plant and equipment” items on investment properties as depreciable articles – these are treated separate to the dwelling.
Items are considered “plant and equipment” depending on a number of factors, such as how permanently the item is attached to the land or building.
A list of items considered “plant and equipment”, as well as their depreciation rates, is available from the Australian Tax Office.
Items that you can typically depreciate in your investment property include:
- Air-conditioning units
- Appliances, such as ovens and hot plates
- Security systems
- Ceiling fans
If you have purchased an investment property, any of these existing items considered “plant and equipment” can be claimed depreciable. However, you first have to determine the purchase cost of these individual items.
There are three ways you can do so.
- You can specify it in the purchase price of your investment property
- You can make your own reasonable estimate of the value of the asset included in the purchase price
- You can obtain a value through an independent valuer, or depreciation expert
Momentum Wealth recommends in most cases that clients obtain an independent valuation from a depreciation expert.
Aside from “plant and equipment”, property investors can claim some items associated with the dwelling in certain circumstances.
The dwelling on an investment property is not normally considered to be a depreciable item because it‘s not “plant and equipment”. However, some provisions have made the cost of constructing buildings, and other capital items incurred in rental properties, to be depreciable in certain circumstances.
For example, “construction expenditure” on an investment property that produces an income can be written off at 2.5% per annum. For residential property, this applies if the construction commencement date was after 15th September 1987 .
The term “construction expenditure” is related to expenditure on the dwelling and includes preliminary expenses, such as architect and engineering fees, among other items. This does not include demolition costs, clearing of land or landscaping, though.
Property investors can also claim travel expenses in some instances.
Transportation, meals and accommodation can be deductible for numerous reasons, including preparing the property for rent, rent collection or for inspections and maintenance.
This is even the case with investment properties located interstate. Property investors can claim the cost of flights and accommodation as a tax deduction in some instances. Be careful though – if you take a holiday at the same time, the ATO may argue the dominant purpose was to have a holiday and the trip may not be deductible.
Please note: Momentum Wealth and its affiliated entities are not accountants or financial planners. While all information is provided in good faith, you should seek your own independent advice in relation to all tax matters.