Investment Properties - How to reduce tax on your investment property

June 29, 2020

Many of the expenses involved in owning an investment property are tax deductible. You can claim deductions for the interest paid on the investment loans, agent management fees, insurances, council and water rates.

Here is a link to the list of general expenses you can claim an immediate deduction on.

You are also able to claim the following:

Repairs and Maintenance

Repairs are any works you carry out on your property to restore something to its original state or function. The ATO determines a repair as, such as replacing part of a damaged fence.

The ATO determines maintenance as work completed to prevent damage or deterioration, such as oiling a deck.

Here is a link to the Repairs, Maintenance & Capital Expenditure quick reference chart.

Write-off or Scrapping when renovating

If you remove an asset, you would be able to claim a deduction for the residual value of the removed asset. To take advantage of deduction for scrapping assets, you must obtain a depreciation schedule both before and after the renovations. This will ensure that you have evidence should the ATO wish to conduct an audit.

Prepay Expenses

Why not pre-pay your investment property expenses and bring forward the deduction?

Borrowing Costs

There are some borrowing expenses you can claim on your investment property. Some of these costs are:

• Broker Fees

• Legal fees and costs associated with preparing and filing of mortgage documents

• Title search fees charged by your lender

• Valuation fees required for loan approval

• Loan establishment fees

• Mortgage insurance

• Mortgage stamp duty

Pay As You Go (PAYG) Variation

Rather than waiting until you lodge your income tax return to receive a lump refund, you can submit a PAYG Variation application with the ATO, which will instruct your employer to vary or reduce the amount of PAYG withheld from your income paid each pay cycle.

Here is the PAYG Withholding Variation Application

Capital Works Deduction

Tax deductions for capital works include building costs, the cost of altering or the cost of capital improvements to the surrounding property. This could include, major renovations, adding retaining walls, building extensions. The rate of deduction is generally 2.5% per year for 40 years following construction.

You should engage the services of a qualified Quantity Surveyor such as BMT Quantity Surveyors or MCQ Quantity Surveyors to discuss the depreciation potential of your investment property(s).

The depreciation schedule has a one-off fee which is 100% deductible.

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