One of the big perks of property investment is saving on tax, but everyone knows taxation is a complex beast.
So, how do you save? According to one expert, investors should claim depreciation (even after the fact); vary their “pay as you go” tax; carefully time any capital gain (to buy more time to pay the tax on it), and also keep up-to-date with the rules.
Rakesh Nairn, a chartered accountant at Brisbane-based BJT Financial Services, shares his top tax tips for property investors.
Like a new car, a property loses value with time and investors get a tax deduction for the yearly loss in value, Nairn explains.
“This is called depreciation and even older properties can still have some value left that can be claimed as a deduction,” he says.
Nairn recommends BMT, one of the largest tax depreciation companies in Australia, for putting together a depreciation schedule. “Their fee will be far outweighed by the tax savings,” he says.
It’s also possible to claim depreciation for previous years, if it was forgotten. “There’s a good chance you can still get a depreciation report done and amend your tax return for that year. You can only go back and amend two prior years.”
“If you regularly get big tax refunds at the end of the year and would prefer to have that cash throughout the year, consider submitting a PAYG withholding variation,” Nairn says.
This trick will mean less tax is taken out – leaving more cash to service regular interest payments.
“If you’re looking to sell an investment property, resulting in a capital gain – meaning it is sold for more than you purchased it for – consider pushing this forward until July,” Nairn advises.
Why? July is in the new financial year, giving an extra year to pay the tax. Be mindful though that the sale happens on the contract date, not when the cash is received.
Investors should know the rules and follow them, to avoid popping up on the tax office’s radar, Nairn says. For example, travel costs related to investment properties are no longer tax-deductible.
“The ATO is red-hot on rental property deductions. For those using sites like Airbnb, who are considering not declaring the income, the ATO is one step ahead of you with their audit and data-matching activities,” he says.
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