Tax Strategies for Property Investors

1. Documentation

Keep summaries of all your rental income and expenses. This is much easier if you have your

management agent looking after your property where they pay all expenses and collect all income. They

will normally provide a monthly and annual statement. Ensure you have all bank statements showing

interest expense. The annual statement should show a summary of interest expense. An accountant can

assist by ensuring all allowable tax deductions are made.

2. Depreciation

Only registered quantity surveyors are generally authorized to prepare depreciation schedules. If you are

contemplating a renovation a quantity surveyor can produce a scrapping schedule which puts a value

against all items to be thrown away. This value is expensed in the year of expenditure. The new items are

then depreciated with a new depreciation schedule.

3. Travel

All your costs to inspect your investment property are tax deductible, including travel. Ensure you

apportion any personal component.

4. Interest Expenses

Only interest expenses on borrowed funds used to invest are deductible. It is the purpose of the loan

which determines deductibility not the security used to obtain the loan. A split loan should be considered

when a loan is used for both investment and private purposes. If capitalizing interest the tax office may

require evidence of correct documentation and intention. Interest deductibility should be easy but if not

properly documented and managed this expense can cause frustration if the ATO decides to review and so

the assistance of an accountant should be used.

5. Trusts

The use of a Trust can be a major benefit to property investors by improving asset protection, estate

planning and increasing flexibility. If using a Trust ensure it has been correctly set up and operated to

ensure you do not lose your interest deductibility which is fully allowable by the ATO if you meet their

requirements.

6. Pre-Pay Expenses

If you have a geared investment it is worth considering pre-paying next year’s interest to gain an

immediate tax deduction. You can also get a deduction now by pre-paying next year’s income protection

insurance premiums. Also, consider bringing forward expenditure which would otherwise be spent after

30 June. If you are planning on doing repairs on your property, note: Care should be taken in determining

whether a maintenance or repair is deductible or it is considered a renovation or of a capital nature.

Consider pre paying other expenses such as Rates, levies or possibly even interest (in the right

circumstances).

7. Manage Capital Gains

Capital gains generated during the year can be minimised by offsetting it against capital losses or trading

losses incurred during the same year. To reduce capital gain generated on sale of property or other assets

during the year consider selling any assets which have lost value and their future is bleak. The 50%

discount on capital gains is available where an asset is held for longer than 12 months. As this is a

considerable saving consider the timing of any sale. The relevant date for calculating capital gains is the

CONTRACT date and not the settlement date.

8. Manage Capital Losses

Capital losses incurred in any year are available to be carried forward to future years if there are

insufficient gains to absorb it in the same year. It can be carried forward for an indefinite period. Capital

losses cannot be offset against other income such as business trading income if you’ve made a capital gain

this year, review your portfolio to see whether it is worth realising a capital loss to offset the gain. You

can’t carry losses back. So if you’ve made a capital gain, you may want to trigger a loss to offset it

against.’

9. Quantity Surveyors Report-Depreciation

Depreciation is the wear and tear on building and equipment. Claiming a tax deduction for this expense

does not require any cash payment. You get a tax saving without paying any additional cash money. To

maximise your deductions it is prudent to get a Quantity Surveyor to produce a report for you as they are

skilled cost estimators. You get a report which minimises your accountants time and cost in preparing

your tax return.

10. PAYG Variation

Where you have negatively geared rental investments, the negative part offsets against your other income

e.g. salary, reducing your tax payable and resulting in a large refund when your tax return is lodged. This

refund can be used to reduce your loan, pay your interest expense or help finance another investment

property. To help with cash flow, would it not be great if you were able to access this refund, throughout

the year instead of waiting till the end of the year? This can help finance that extra property which has

potential to pick up some capital growth between the beginning and end of year. This can be done by

lodging an application to vary the ‘Income Tax Withholding’ using a form from ATO. This can be done

electronically on line or you can download the form, prepare and lodge it manually. PAYG instalment

obligations should be reviewed and consideration given to varying the instalment for the June

quarter, where the estimate of income tax payable for the year is less than the instalments raised by the

ATO. This will reduce the impact of this instalment on your cash-flow