tax_tips

Tax tips you need to know as a property investor

A crafty property investor can adopt a range of strategies to minimise their tax and maximise their tax benefits.

As an investor, you should fully understand what you can claim as immediate deductions, deductions relating to depreciating assets and capital works deductions. It’s also important to remember to add these to your property’s cost base to reduce the amount of Capital Gains Tax (CGT).

Learn more about CGT

Deductions checklist for property investors

Here is a list of deductions that you should keep track to maximise your tax breaks:

  • Interest on your investment loan
  • Land tax
  • Council taxes
  • Water charges
  • Insurance
  • Repairs and maintenance (inc. gardening, pest control, travel etc.)
  • Agent fees (commission is only applicable to CGT, not deductions)
  • Administrative cost of leases
  • Bank charges

Investors need to notice and record the immediate expenses that are deductible such as land tax, interest on property loans, repairs and maintenance and insurance. For depreciating assets such as appliances and capital works deductions such as renovations and remodelling, claim annual deductions. Those who fail to claim all of their deductions could end up paying too much unnecessary tax. It could also be worthwhile to ensure that you add all eligible capital expenses to your property’s CGT cost base to reduce the CGT payable. You can also accelerate deductions by prepaying eligible expenses and then performing last minute repairs to your properties.

Jargon buster
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  • Capital works. These are eligible large scale repairs that your local Council carries out on your property.
  • Cost base. The cost of the asset (in this context, the property) when you bought it but it also includes certain other costs like acquiring, holding and disposing of the asset.
  • Deductions. This is an amount that is or may be deducted from a taxable income, or tax that is due to be paid.

Tips for reducing CGT

  • Ensure that you try to maximise the cost base of your property legitimately. Common expenses that are looked over are external cost base amounts and random costs on the purchase or sale of the property.
  • CGT is payable when a ‘CGT event’ occurs which when you sell an asset, or when the contract is signed. Where possible, a deferral of the contract date may defer the CGT costs, which means tax saved.

Confused? Get expert help from a tax specialist

Some matters relating to property tax are best dealt with using the help of an expert. By filling in the form below you can speak to an expert from the Property Tax Specialists to learn more about tax in relation to your property.

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Repairs vs improvements - what's the difference?

From a taxation point of view, repairs and maintenance are deductible whereas improvements are considered capital expenditure, which means you will need to deduct them on a yearly basis. The Australian Tax Office (ATO) defines repairs as the ‘replacement of renewal of a broken part’ and improvements are ‘landscaping, insulating and adding a room’.

Did you know?
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  • It’s easier for investors to look over depreciation deductions in existing buildings, instead of new ones - this includes the depreciation of the building itself.
  • Using professional services, such as a quantity surveyor means that you’ll get an accurate depreciation schedule.
  • When doing renovations, make sure you keep track of a schedule to put a value on everything you’ve thrown away.
  • Depreciating assets that cost $300 or less are generally immediately deductible.

Negative Gearing and taxes

There are some hidden benefits of buying a property when using negative gearing.

Your losses can be claimed back against your income, as the Australian system sees property investment like a business. With negative gearing, it’s possible to get a second stream of income, as the tax refunds can add to your rental income - it then becomes more about the cash flow, rather than the gearing. When the tax benefits are used to offset your losses, the end result can actually exceed the expenses incurred, which means a positive cash flow.

To determine whether an investment property suits your strategy, look at the after-tax weekly cash flow rather than before negative gearing has an impact. As property prices increase, so will rent, so your return on investment also increases. Also, when interest rates decrease, it is likely that your loan costs will too, giving your more returns.

Learn more about Negative Gearing

Pay as you go

This method of tax collection allows investors to make deductions regularly, rather than in one lump sum at the end of the financial year. However, an accountant is essential as they usually submit financial information to the ATO. For property investors, tax liability will depend on things like interest, maintenance, rates and depreciation of the rental property. Be mindful that it doesn’t replace a normal tax return, so you will still need to file one at the end of the financial year.

Some investors don’t try to reduce their PAYG instalments, to show their expected negatively geared deductions, in the case they may spend the money. But experts urge investors not to do this.

Hefty penalties apply if you’re caught cheating

Property investors shouldn’t be stupid and cheat with their taxes, this includes claiming that others have done renovations, when you have done them yourself. The ATO is constantly auditing the deductions claimed by property investors and hefty penalties apply to those who are claiming ineligible expenses, or failing to declare income.

Investing? Compare investment home loan rates

Rates last updated September 21st, 2017
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
4.09%
4.11%
$0
$0 p.a.
80%
Pay no application fee on this low variable rate investment home loan.
3.74%
3.74%
$440
$0 p.a.
80%
An investment loan with a competitive interest rate, no ongoing fees and flexible repayment options.
4.09%
4.09%
$0
$0 p.a.
80%
Investors can take advantage of a discounted standard variable rate.
4.49%
4.52%
$0
$0 p.a.
80%
Access equity to further your investment opportunities.
3.99%
4.00%
$0
$0 p.a.
80%
A low-fee variable rate investor loan with a fast online application process.
4.87%
4.91%
$595
$0 p.a.
80%
Get a basic investment home loan with no ongoing fees.
3.89%
3.91%
$0
$0 p.a.
80%
Package your owner-occupied loan with your investment loan and enjoy low rates for both.
4.29%
4.32%
$600
$0 p.a.
90%
Borrow up to 90% LVR and pay no ongoing fees with this investment loan.
4.24%
5.32%
$0
$395 p.a.
95%
Lock in the interest rate on your investment purchase for 3 years and enjoy the benefits of a package home loan.
4.83%
4.88%
$445
$0 p.a.
80%
A competitive home loan for investors.
4.65%
4.69%
$600
$8 monthly ($96 p.a.)
90%
Save on a no-frills home loan that offers a competitive rate without the bells and whistles.
4.39%
5.34%
$499
$0 p.a.
95%
Enjoy a competitive 3-year fixed rate with no ongoing fees.
4.19%
5.37%
$0
$395 p.a.
95%
Plan ahead by locking in your rate for 3-years on this investor loan. $1,500 cash back available for refinancers. Conditions apply.
3.98%
5.58%
$600
$8 monthly ($96 p.a.)
95%
Get peace of mind by fixing your investment home loan rate for 2 years.
5.59%
$0
$395 p.a.
90%
Package your home equity loan to save on rates and fees.
5.79%
5.93%
$600
$8 monthly ($96 p.a.)
95%
A competitive rate to help you purchase your next investment property.
4.34%
5.53%
$600
$8 monthly ($96 p.a.)
95%
Get a competitive 3-year fixed rate to buy your next investment property.
4.44%
5.53%
$0
$395 p.a.
90%
Enjoy a 2-year fixed rate with no establishment fees or annual credit card fees, all for an annual package fee of $395.
5.20%
5.58%
$0
$395 p.a.
95%
Package your investment loan and pay no application fees.
4.23%
4.54%
$0
$299 p.a.
80%
A competitive package rate for loans above $150,000. Optional offset account.
4.79%
5.44%
$0
$395 p.a.
95%
Package your 4-year fixed rate investment loan and pay no application fees.
3.88%
5.42%
$0
$395 p.a.
95%
A competitive 2-year fixed rate to help you invest in property.
4.09%
4.25%
$300
$10 monthly ($120 p.a.)
90%
Get a competitive investment home loan rate without expensive features you may not need.
4.59%
5.37%
$0
$395 p.a.
95%
Enjoy the stability of an investment home loan rate locked in for 5 years.
4.29%
4.64%
$0
$299 p.a.
90%
A high LVR home loan able to be used for investment purchases.

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2 Responses

  1. Default Gravatar
    danielNovember 28, 2013

    HI, i am settling into a new investment property soon. Just wondering, do i have to live in the property for at least 3 months to avoid CGT if i wanted to sell it within 6 years ?

    • Staff
      ShirleyNovember 28, 2013Staff

      Hi Daniel,

      Thanks for your comment.

      Only your main residence is exempt from CGT. All other assets you have are liable for CGT but you may be eligible for a 50% CGT discount if you’ve owned the asset for than a year. The rule you’ve referred to above only applies if you’ve used your main residence to generate income, such as renting it out while you’re away.

      As with all CGT questions, it always best to confirm these details with an accountant.

      Hope this helps,
      Shirley

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