A huge reason why owning an investment property is so popular in Australia is the tax deductions that are available to offset personal or company income. Tax Time is fast approaching and it’s important to take stock of your income and expenses and ensure you’re minimising your tax liability as much as possible.
If you have an investment property are you aware of what tax deductions you’re able to claim to help minimise your tax liability? Our tax tips for property investors provide a quick overview of the main areas that are tax deductible.
Insurance (building and landlord)
New leasing costs and associated advertising
Council rates and strata fees
Any legal costs incurred
Accounting and bookkeeping
Interest and fees charged by lenders in relation to financing the purchase of the property
Outgoings – Water, gas, electricity, waste removal (usually covered by the tenant)
Regular external maintenance – gardeners, pool cleaners and security services
Travel expenses related to inspecting the properties (legitimate claims only)
If you have a negative-geared property, the income which is produced from the investment will not be enough to cover all the outgoings and finance payments, so the cash-flow loss becomes an allowable deduction.
As an alternative to a negative-geared property, you may have a positive-geared property, meaning the income generated from the property is greater than the costs of owning it. If this is the case, the profit income will be assessed as taxable income come tax time.
For both situations depreciation allowances, derived from a Deprecation Schedule compiled by a registered quantity surveyor, will allow further legitimate deductions on any income. The ideal situation is to have a cash-flow positive property with depreciation allowances creating significant deductible losses to mitigate the positive cash-flow, thus negating the need to pay tax.
When investing in property it is important to understand the difference between a tax loss and a cash-flow loss, as they are not the same thing and have very different implications on your ability to service loans and build equity.