Here are our top five tax tips for property investors to consider when completing this year’s tax return:
1. Documentation: Keep summaries of all your rental income and expenses including bank statements showing interest expenditure. This is much easier if you have a management agent looking after your property where they pay all of the expenses and collect all income. They will normally provide a monthly and annual statement.
2. Depreciation: Only registered quantity surveyors are generally authorised to prepare depreciation schedules. Many people ask, ‘’can’t my accountant just do it’’? The problem is that accountants don’t have the skills to estimate what a property might have cost to build, or renovate. The people best qualified to do this are quantity surveyors.
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 and any new items are then depreciated with a new depreciation schedule.
3. Interest expenses: Only interest expenses on borrowed funds used to invest are deductible. Interest deductibility should be relatively straight however if you are claiming interest expenses as a tax deduction for the first time, we would recommend using a specialist property accountant who can guide you through the rules and regulations.
4. Pre-pay expenses: It is worth considering prepaying expenditure that would otherwise be spent after June 30 such as rates, levies or possibly even interest (in the right circumstances) in order to gain an immediate tax deduction.
5. Manage capital gains: Capital gains generated during the year can be minimised by offsetting it against capital losses incurred during the same year. To reduce capital gains generated on the sale of a property during the year, consider selling any assets which have lost value. The 50% discount on capital gains is available where an asset is held for longer than 12 months. The relevant date for calculating capital gains is the contract date, not the settlement date.
Infinity Property Agents – Sydney