10 Ways To Save Tax On Investment Property

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Updated: June 21, 2022

How to save tax on investment property

10 smart tips to get your tax back 

A tax-advantaged investment property can help you achieve financial freedom. As an investment property owner, you are entitled to a range of income tax deductions and concessions that can save you thousands of dollars each year.

How-to-save-tax-on-investment-property

Save tax on rental property

In Australia, about one in every four taxpayers owns a rental property. Many people engage in real estate not only to increase their financial worth but also to profit from tax advantages.

In the 2017-18 tax year, over 2.21 million people in Australia claimed rental deductions totalling $49.96 billion on their tax returns.

While rental income is taxable, outgoings for your investment properties are deductible and can be offset against other sources of income. In most cases, you will receive a tax refund. As a result, the more claim deductions you do, the lower your taxable income and the greater your refund.

Tax saving tip:

If you share a rental property with someone else, you must report your part of rental income and expenses in the same proportion as the legal ownership of the property on your income tax return.

The interest portion of the mortgage is a significant element of the possible tax deduction for people who go down the investment property path.

Property management fees, rates, loan payments, and upkeep and repairs are all expenses that you can claim.

This blog will discuss strategies to maximise the tax benefits of owning an investment property and ways to reduce any future burden to pay capital gains tax.

As you'll see, investment property tax deductions can be enormous, resulting in significant income tax returns, even if the investment property doesn't yield much rent in comparison. However, in the income year, you claim a deduction; the investment property must be rented or 'genuinely available' for rental.

If you begin to use the property for personal reasons, you will not be able to recover any interest charges incurred after you begin to use it for private purposes.

Tax saving tip:

You must be sure that you want to rent your investment property. If you make little effort to advertise your property or set the price too high, the ATO may conclude that you have no intention of renting it, and it may deny your rental claim. 

You need to split up the rental fees in some cases. For example, if you, your friends, or your family use your vacation property for free for part of the year, you are not entitled to claim capital works deductions for the costs incurred during that time.

If you rent your home to family or friends for less than market rent, the ATO may classify it as a 'private' agreement, allowing you to claim only enough deductions to cover the rent but not enough to result in a tax loss.

Risk -

When claiming interest on a holiday house property that is utilised for one month (one-twelfth) by your family for holidays, be careful not to overestimate interest deductions because the loan is partly for personal reasons.

The ATO has been keeping an eye on rental properties for a few years now since the tax deductions are significant, and they are prone to errors. The ATO contacts thousands of taxpayers with rental properties every year, who are asked to explain and defend their tax returns. Make sure you can back up your claim.

Not having a depreciation schedule from a quantity surveyor, putting back personal use of property, claiming travel expenditures as a deductible, and claiming capital goods as repairs are all common blunders. With the below tips, you will learn to minimise your blunders and maximise your gains.

10 Ways to save tax on investment property

Below are some of the best ways to save tax on investment properties along with experts' tips and examples.

10-Ways-to-save-tax-on-investment-property

1. Take Tax Benefit of Negative Geared investment Property

When your investment property's expenses (such as rates, insurance, repairs, and interest) exceed the rent you earn, you're negatively gearing it.

Is this a bad thing? The answer is no.

In fact, it's a great method to save tax on investment property.

The net loss is a tax deduction that will often result in a refund compared to other income such as salary, interest, and company income.

In the 2017-18 tax year, the average net rental loss for Australian taxpayers was $9156, while the average net gain for favourably geared homes was $9632.

Negative gearing is more favorable to those in higher-income bands who pay tax at the top marginal rate in Australia because of the progressive tax structure. However, as tax brackets have changed and tax rates have decreased over time, fewer people in the highest tax band can fully benefit from negative gearing benefits. 

Fact - You may not know this, but in Australia, 60% of investment properties are "negatively geared."

Take-Tax-Benefit-of-Negative-Geared-investment-Property

Example of net rental income calculation

Net Rental Income or Loss 

Scene 1

Scene 2

Scene 3

Scene 4

(a) Assessable Income Before Rent 

$4,00,000

$300,000

$140,000

$70,000

Rental Income 

$18,600

$18,600

$18,600

$18,600

Rental Expense 

$41,200

$41,200

$41,200

$41,200

(b) Net rental loss 

$22,600

$22,600

$22,600

$22,600

(c) Taxable income (a-b) 

$377,400

$277,400

$117,400

$47,400

(d) Marginal tax rate 

47%

39% 

35%

22% 

(e) Tax benefit of negative gearing (b x d)

$10,622

$8,814

$6,510

$4,092 

(f) Net cash outflow by investor (b - e) 

$11,978

$13,786

$16,090

$18,508

In the example above, the taxpayer in the highest tax bracket (scene 1) receives a $10,622 tax return. However, if they were in the 22% tax bracket (scene 4), they would only receive $4,092 in return and be out of money by $18,508.

The worst-case situation is if the other sources of income are insufficient to compensate for the rental property loss. In this case, there is no tax refund, but the loss can be carried forward to future tax years.

When buying a home, don't let emotions get the best of you because there's too much money on the line if you get too connected and go over budget. You can end up with a home that is too negatively geared and find it challenging to keep up with the minimum payments.

People who buy many properties have difficulty paying for them with their financial situation. Negative gearing in Australia means that your expenses surpass your revenue, resulting in a negative cash flow. Even so, the tax benefit is only a fraction of the loss.

Risk -

Negative gearing isn't the be-all and end-all method. Keep the 'ABC motto' in mind while making a property investment decision: 'Absolute Bloody Cashflow!'

While the example above depicts taxpayers receiving significant reimbursements (varying from $4,092 to $10,622), the net cash outflow amount still leaves them out of pocket. Their properties' capital value must improve yearly by at least that amount. Otherwise, they are in worse financial shape than at the beginning of the year.

The only time you might negatively gear an investment property is if the property's capital growth exceeds the negative cash outlay. Naturally, there are no guarantees that this will occur.

Tax saving tip:

A positively geared rental property yields a better financial outcome after taxes than a negatively geared property, in which the rent received exceeds the property expenses. You must, of course, pay taxes. But I'd gladly pay $10,622 in taxes if it meant my bank account grew by $22,600 with no work!

How does negative gearing work in Australia?

Negative gearing allows investors in Australia to offset the losses made on their investments against their other income. It provides an incentive to invest in property, as investors can claim these losses against their regular income and reduce their overall tax bill.

The downside of negative gearing is that it can encourage people to invest in property purely for profit rather than to generate rental income. It can lead to inflated housing prices and increased levels of debt.

2. Pre-pay your Interest

If you take out a loan to buy a rental property, you can deduct the interest, or a portion of the interest, as a tax deduction.

For rental property investors, it is usually the most significant tax reduction.

According to ATO statistics, interest claims accounted for more than 47.5 per cent of all claims for rental property deductions lodged by taxpayers in the 2017-18 tax year.

You can claim interest on the loan you used to rent your property while it is rented or available.

  • Provide funding for renovations (such as adding a deck or second floor)
  • Buy assets that depreciate (such as an air-conditioner or stove)
  • Cover the cost of repairs (such as roof repairs due to storm damage).

Tax saving tip:

All debt is bad debt. However, if you must have debt, make sure it is tax-deductible. Rather than making extra interest repayments on investment property loans, pay off your non-deductible debt (such as personal loans, home loans, and credit cards) first. Once you've paid off your non-deductible debt, you can focus on getting rid of your tax-deductible debt.

You can also deduct interest on loans used to buy land for a rental property. You cannot claim the interest if your objective changes—for example, if you decide to use the property for personal reasons and no longer utilise it to generate rent or other income.

You won't be able to claim interest if you:

  • Begin renting out the rental property for personal use.
  • Borrow a portion of the money for personal reasons (such as purchasing a new car or investing in a super fund)
  • Use a loan secured by an existing rental property to purchase a new house.

You must know 12 Things property development lenders look for when funding projects.

Pre-pay-your-Interest

Example of calculating interest on rental property

Joe and Mary decide to take out a 3.5 per cent loan for $750,000.

The funds will be utilised to purchase a rental property for $600,000 and a car worth $70,000.

Year 1 interest = $750,000 x 3.5% = $26,250

Apportionment of interest on a rental property - 

(rental property loan + total borrowings) x total interest expense = Deductible interest

$19470 = $21120 X ($590000/$640000)

$26,250 x ($600,000/$750,000) = $21000

For the first year of the property, Joe and Mary can each claim $10,500 in interest on their annual tax return.

Risk -

Claiming a deduction for interest on the private component of the loan is a common blunder. The interest expenditure must be split between the 'deductible' and 'private' portions of the overall debt.

The calculations can be complex, especially if you have a loan account with a variable balance due to a range of deposits and withdrawals and is used for personal and rental purposes.

Even if you rent out the original house that the loan is secured against, you cannot collect the interest on the additional borrowing if you use the equity on your existing property to buy a new house to live in.

In this case, just the portion of the interest related to the original loan for the rental property is deductible.

Tax saving tip:

When purchasing a home, don't overextend yourself. Why are about 40% of first-time home buyers currently experiencing mortgage stress? Because they spent more than they could afford. Before you go out and buy something, make a budget.

You don't have to spend the entire $1 million just because they're prepared to give it to you. A minimum 20% deposit will serve as a safety net in employment losses. Family planning and illness, interest rate hikes and unforeseen costs, and avoiding mortgage insurance are all things to consider.

Never rely on a bonus to pay your bills on time. It is preferable to purchase a smaller home and live a comfortable life with frequent family vacations than to purchase a larger home and be unable to enjoy it because you work overtime and weekends.

3. Depreciation

Depreciation is usually the second-largest deduction available to rental property investors after interest, but many don't take advantage of it.

The goods in your rental property endure wear and tear as they age, and their value depreciates. You can claim a deduction for depreciation on the following items:

  • Machinery and equipment
  • Began after February 27, 1992, for renovations or significant improvements
  • The structure itself, if constructed after July 18, 1985 (and purchased before May 9, 2017, for previously used properties).

The amount of depreciation claimed varies substantially based on the building's age, use, fit-out, and kind. Plant and equipment items, as opposed to items that are permanently fastened to the structure of the building, are objects that can be 'simply' removed from the property.

Some examples of these are carpets, hot water systems, blinds, and light fixtures. They are typically written off over a five- to ten-year period.

Suppose you had purchased an investment property not previously used before May 9 2017, and built after July 18 1985. In that case, arranging a depreciation schedule from a quantity surveyor is probably worthwhile due to the significant deduction available for building expenditures.

Depreciation Schedule:

A depreciation schedule is a document that outlines the decline in value of an asset over time. Investment property owners can claim depreciation deductions for the wear and tear of their property and any decline in value due to age or obsolescence.

The Australian Taxation Office (ATO) maintains a detailed list of over 230 residential property items that can be depreciated.

Risk -

Depreciation deductions on residential rental real estate properties have been limited to those investors who have purchased the plant and equipment since May 9, 2017. Depreciation deductions on the written-down value of assets purchased by prior owners will be unavailable to subsequent owners.

The building write-off allowance (also known as the capital works allowance) is a 2.5 per cent deduction for the structural portion of a building, including fixed, immovable assets, that can be written off over 40 years.

It is based on historical construction costs, excluding all 'plant' and non-eligible materials, and includes bricks and mortar, walls, flooring, and wiring.

When you sell your rental property, you must deduct the amount claimed for the construction write-off allowance from your cost base for CGT purposes.

When it comes to depreciating property for tax purposes, there are two options:

  • High-end price (or straight line)
  • Dwindling worth (or reducing balance).

The deduction for each year under the prime cost method is calculated as a percentage of the cost as follows:

cost x days owned/365 x 100% effective life of the plant (in years)

The deduction is calculated using the decreasing value technique as a percentage of the remaining balance to deduct: 

Opening cost un-deducted x days owned/365 x 200% of the effective life of the plant (in years)

The ATO determines the effective life of each piece of plant and equipment.

When you use the decreasing value method to make a claim, you are claiming a more significant percentage of the asset's cost in the early years. When using the prime cost technique, you claim a smaller but more consistent amount of the allowable deductions over the property's lifetime.

The property investor's goals will determine the most appropriate investment strategy. Most investors use the decreasing value technique since depreciation deductions are higher cumulatively over the first five years of ownership.

New properties are not exempt from depreciation. If you haven't claimed depreciation before, you can submit an amendment to your returns to make up for the lost claims.

Tax saving tip:

Make sure you get a quantity surveyor to help you plan your depreciation schedule for your investment property. They are one of the few specialists recognised by the ATO as possessing the necessary construction costing expertise to compute item costs for depreciation reasons.

FAQ

Q. I bought a ten-year-old apartment to rent out in April 2021. The former owners provided me with a copy of their depreciation plan, which included carpet, a hot water system, the oven, an air conditioner, and lights, among other things. After that, I bought a second-hand TV from a friend and installed new drapes, as well as an old clothes dryer and refrigerator from my house. Is it possible for me to claim depreciation on all of these items?

Answer - You can't claim deductions for the depreciation of any existing depreciating assets in the flat because you bought it after May 9, 2017. Similarly, because the clothes dryer, refrigerator, and television are second-hand depreciating items, you cannot claim a deduction for their depreciation.

You can only claim depreciation deductions for the curtains if they were brand new when fitted.

4. Pooling of low-value assets

In addition to adopting the decreasing value technique, investors can 'combine' depreciable assets with written-down values less than $1000 and depreciate them at a more favourable 'pool rate' of 37.5% to maximise rental property deductions in the first five years.

Tax saving tip:

Depreciable assets worth $300 or less usually qualify for an immediate deduction if they are not part of a set.

Once an asset is assigned to a low-value pool, it remains in the pool and does not need to be calculated separately for its adjustable value or decline in value. It is only necessary to perform one annual computation.

Risk -

New assets purchased for less than $1000 during the year are classified as 'low-cost assets,' although their value declines at a rate of 18.75 per cent in the first year or half the pool rate.

Because assets may be allocated to the pool at any time throughout the income year, halving the rate eliminates the need to conduct separate calculations for each asset based on when it was allocated to the pool. They are depreciated at the standard pool rate of 37.5 per cent in the following years.

5. Understand Repairs, Maintenance and Capital Improvements

Investors are most confused by repairs and maintenance deductions. The best thing is you can claim an immediate deduction for both.

If you are replacing a worn-out or broken element and relate to wear and tear or other damage from renting the property then it is considered a repair.

It includes:

  • storm-damaged gutters or windows
  • repairing a tree-branch-damaged fence section
  • window replacement
  • fixing electrical equipment.

When work is done to prevent or repair degradation, it is referred to as maintenance.

It includes:

  • renter painting
  • lubricating, brushing, or washing a functional item
  • plumbing.

In most cases, this is deductible if the property:

  • rented regularly
  • stays available for rental but is uninhabited for a short time.

Repair costs may still be deductible if you no longer rent the property if:

  • The repairs are tied to when the property generated income
  • You earned income from the property during the year of repairs.

You can't claim repairs and maintenance costs in the year you paid for them if they weren't related to wear and tear or other damage from renting out your property.

Risk -

Initial repairs or capital improvements are often deducted immediately. Initial repairs to correct damage, faults, or deterioration at the time of purchase are considered capital and not deductible, even if you did them to make the property rent-ready. However, you can deduct these repairs over 40 years.

Landscaping, bathroom remodels, and deck additions are non-deductible. You can't claim the total replacement cost in the same year. You may be able to claim the expenditure over time as a capital works deduction or a depreciation deduction.

Repairs that improve the property and don't merely restore it to its previous condition usually are capital improvements.

Capital improvements are not deductible if it:

  • Increases the property's income-producing ability or expected life
  • Modifies the item's character
  • Goes beyond restoring the property's efficient functioning

If you replace a fence, building, stove, kitchen cabinets, or refrigerator then you have not repaired it.

Tax saving tip:

If you make repairs and improvements to your rental property, ask for an itemised invoice to deduct the cost of repairs separately from the improvements.

You must report insurance pay-outs for repairs as income.

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6. Claim borrowing and legal costs

You can take advantage of tax breaks on the borrowing and legal costs of your investment property.

Claim-borrowing-and-legal-costs

Borrowing costs

Borrowing costs for a rental real estate property loan are tax-deductible. Unless they're $100 or less, you can't claim them all in the first year. If your total deductible expenses are over $100, split the deduction over five years or the loan duration, whichever is less.

The first-year deduction will be prorated if you get the loan part way through the year.

The following are deductible borrowing expenses:

  • Document preparation and filing fees
  • LMI
  • Loan establishment fees
  • Broker fees
  • Mortgage stamp duty
  • Lender-charged title-search fees
  • Mortgage loan appraisal costs.

Mortgage discharge expenditures, including outrageously high penalty interest rates, are deductible in the year they are incurred if the mortgage was taken out as security for the repayment of money borrowed to produce assessable income.

Risk -

You can't claim the following costs as borrowing costs - 

  • Stamp duty imposed by your state/territory on the transfer (purchase) of a property title might be added to the property's cost base for capital gains tax purposes.
  • Insurance premiums that cover your debt in case of death, disability, or unemployment (this is a private expense)
  • Private loan expenses (for example, money used to buy a boat).

Tax saving tip:

Stamp duty, preparation, and registration charges on an ACT lease are deductible if the property is rented. ACT properties cannot be owned freehold. They're usually leased for 99 years.

This worked example explains how to compute borrowing expense tax breaks for your portfolio.

Example

A person borrowed $500000 over 35 years to buy a rental real estate property on September 16 2022. His deductions included:

$1000 mortgage stamp duty

$700 loan origination fees

$300 loan valuation costs 

The person paid $9700 in stamp duty on the property transfer and can't deduct it. This expense will be included in the "cost base."

His annual borrowing expenditure deduction is as follows:

Borrowing expenses x number of relevant days/ days in 5 years = Deduction for the year 

2022-23 (288 days) = $2000 x 288/1825 = $316

2023-24 (366 days) = $2000 x 366/1825 = $401

2024-25 (365 days) = $2000 x 365/1825 = $400

2025-26 (365 days) = $2000 x 365/1825 = $400

2026-27 (365 days) = $2000 x 365/1825 = $400

2027-28 (76 days) = $2000 x 76/1825 = $83

Tax saving tip:

If you repay your loan early, you can deduct the remaining interest in the payback year.

Legal expense

Some legal fees related to rental real estates are deductible, whereas others are capital and not deductible.

Included in deductible legal costs are:

  • Preparing a tenant lease
  • Evicting non paying tenants.

Risk -

Most legal expenses are capital and not deductible. Included are:

  • Loan paperwork (can be claimed as borrowing expenses)
  • Property buy (or sale)
  • Land resumption resistance
  • Title defence

Your CGT cost base may include non-deductible capital legal fees. 

7. Other rental deductions

You may be able to deduct the following property expenses in the year incurred:

  • Tenant advertising 
  • Bank fees 
  • Strata levies 
  • Cleaning
  • Utility bills
  • Gardening and lawnmowing
  • Insurance (building, contents, and public liability)
  • Land tax
  • Letting fees
  • Pest control
  • Property agent's fees and commission
  • Quantity surveyor's fees
  • secretarial and bookkeeping fees
  • security patrol fees
  • Servicing costs-for example, servicing a water heater
  • Stationery and postage
  • Tax-related expenses
  • Telephone calls and rental

You can deduct these costs only if you pay them and the tenant doesn't.

Risk -

Since July 1 2017, inspection, maintenance, and rent collection travel expenditures are no longer deductible in Australia. 

Each Australian state and territory (excluding the Northern Territory) imposes a land tax with various rates, thresholds, and due dates. It depends on unimproved land value (rather than the whole property value).

The tax is typically collected on land owners at midnight on December 31 in New South Wales and Victoria (and June 30 in most other states) on land values above the threshold level.

Land taxpayers must file a return. Owner-occupied residences or principal-producing land are exempt from land tax, while trust or business properties have a zero threshold.

State Land Tax Threshold

State

Land tax threshold 

ACT

0

NSW

$755,000

QLD

$600,000

SA

$450,000

TAS.

$25,000

VIC.

$250,000

WA

$300,000

Due to COVID-19, governments and territories have given employers land tax relief. These policies vary by state but include deferral and land tax waivers.

Expenses incurred while your property is rented or available for rent are deductible. You can't claim capital or private expenses, but you can claim decline-in-value or capital works deductions for some capital costs or put them in the property's cost base for CGT purposes.

These are some expenses that ATO will not allow you to claim - 

  • Acquisition and disposal costs of the property 
  • Body corporate fees to a special-purpose fund to pay for particular capital expenditure
  • Expenses you do not incur, such as water or electricity charges paid by your tenants 
  • Other expenses not related to the rental of a property, such as expenses connected to your use of a holiday home you rent out part of the year. 

Tax saving tip:

Make sure you have documentation to explain your deductions and can link the expense to rental income (e.g., it wasn't for a private purpose).

8. Foreign investments

Australians must pay tax on their worldwide income. It includes declaring revenue from a foreign property on your Australian tax return, even if it was taxed outside Australia.

An Australian foreign income tax offset may relieve double taxation if you've paid overseas tax on that income.

You can also claim interest, repairs, depreciation, rates, and insurance on foreign rental property.

You'll lose money abroad if your overseas property tax deductions exceed your overseas rental income. Foreign losses were sequestered for several years and could only be mitigated by future foreign income.

Many overseas property investors are unaware of a recent rule change. Since July 1 2008, foreign losses have been included in domestic income. You can now "negatively gear" overseas income loss to reduce Australian income.

Risk -

Foreign owners who leave their Australian properties empty for 6 months or longer each financial year must pay a $6350 vacancy fee. Higher-value properties pay more. The charge is the same as the Foreign Investment Review Board's application fee for foreigners buying Australian property.

Before calculating net income, you must convert all international income, deductions, and taxes to Australian dollars. Two options exist. You can use:

  • Exchange rates at particular times (used for transactions like monthly rent, asset acquisitions, and one-time expenses like rates and insurance).
  • Average exchange rate (used for long-term expenses like loan interest)

Risk - 

Australian residents must disclose capital gains on overseas property in their returns. If you paid overseas tax on a taxable Australian gain, you may be eligible for a foreign income tax offset.

If an ATO audit finds you didn't declare offshore income, you could face fines and jail time if it was an "intentionally fraudulent act."

9. Capital gains Tax

If you are selling properties purchased after September 19, 1985, you must plan carefully to avoid capital gains tax (CGT). Capital gains are taxed at an individual's marginal tax rate.

Tax Saving Tip:

Property investing for more than a year reduces CGT. Since September 21, 1999, investors can receive a 50% reduction on long-term capital gains. Non-residents no longer get this discount on Australian taxable property after May 8 2012.

Risk -

A 12-month-old investment property sold with a 50% capital gains tax discount. If you plan to refurbish and sell, consider renting. You may be taxed on the entire profit as a 'profit-making scheme' rather than as a long-term investment.

You'll realise a capital gain if the sale profits are more significant than the property's cost basis. A property's cost base includes - 

  • The original purchase price
  • Legal expenses, stamp duty
  • Real estate agent's commissions when selling.
  • Property upgrades (minus earlier depreciation).

Tax Saving Tip:

If you're selling a profitable item, such as shares or property, consider waiting until after the financial year. By doing so, you'll have an extra year to pay any CGT liability and earn interest.

Exchange after July 1 to avoid paying CGT in the year you settle.

Negative gearing is favourable for high-income people since they obtain higher refunds. When a property is sold and subject to CGT, the opposite happens.

Tax Saving Tip:

Delay selling your investment property until your income drops, and you enter a lower tax bracket. Investors nearing retirement should consider deferring CGT liability until they are retired and receive little or no income.

You can offset capital gains with capital losses.

A person's principal residence is CGT-free when sold, although they can rent it and claim the exemption for up to six years. The CGT clock starts ticking afterwards.

Investment homes provided by Community Housing Providers (CHP) as affordable housing for at least three years are eligible for a 10% CGT deduction. It increases the CGT discount to 60%.

Under state and territory affordable housing legislation, rent must be discounted below the private market rate established by the registered CHP.

Risk -

Foreign residents who formerly lived in Australia cannot claim the principal residence CGT exemption after July 1 2020. It means the owner's capital gains tax liability started when they bought their property, not when they went overseas (plus up to six years they rented it after being their home).

The 2021-22 federal budget proposes a new Australian tax residence structure that includes a 183-day presence test.

FAQ

Q. If we move into our granny flat and rent out the main house, do we owe CGT?

Answer: When you move into your granny flat, it's a separate CGT asset. It would be best if you claimed the exemption on the asset with the most growth potential, which is likely the primary dwelling. Living in two places at the same time is exempt from CGT.

The 2020-21 federal budget suggested a CGT exemption for official granny flat agreements.

10. Complete PAYG (Pay-as-you-go) withholding

Getting your refund at the end of the year forces you to save. If cash flow is constrained, execute a PAYG withholding variation application to minimise your monthly tax. The form estimates taxable income. You still need to file a tax return annually.

Tax Saving Tip:

Withholding should equal year-end tax liability. If you underestimate your income, you'll have a tax deficiency. Don't overestimate deductions to give yourself a buffer.

If your circumstances change after your PAYG variation is authorised (you increased the rent, your expenses are lower than projected, or you sold your property), request a new variation. Otherwise, you may owe taxes at year's end.

You can apply by mail or online. The new withholding rate will begin after your pay office gets the ATO's authorisation notification.

PAYG withholding variations aren't just for negatively geared landlords. They can also be employed when taxpayers' assessable income is lowered for tax-deductible expenses. It includes work-related automobile expenses, self-education fees, or margin-loan interest.

Your PAYG withholding variation application expires on June 30 each year; it doesn't roll forward. To continue to have reduced tax withheld beyond this date, file a PAYG withholding variation application by May 15 each year.

Risk -

Anyone using withholding variation to enhance cash flow must be disciplined enough to use the extra money to cover the shortfall, not for living costs.

If you seek advanced refunds, there will be no end-of-year tax deduction and no "forced saving."

Bottom Line

So, there you have it. 10 ways that you can save tax on your investment property this year. Of course, everyone’s situation is different and you should always speak to an accountant or financial planner to see what would work best for you.

But the good news is that there are plenty of options out there and I hope at least one of these tips has helped you get a little closer to reaching your financial goals. If you want more information on any of these topics – or simply want to know how much tax you could be saving – check out the advanced course of property development system.

It’s packed full of useful information for investors just like you.

FAQs

Is landlord insurance tax deductible?

Landlord insurance is designed to protect you against financial losses incurred as a result of damage to your rental property. it can also provide liability coverage if a tenant is injured on your property or if they cause damage to someone else's property. In most cases, landlord insurance is tax deductible. However, there may be some instances where it isn't, so it's important to check with your tax advisor before assuming that it will be.

What you can claim on your investment property?

You can claim the following on your investment property: -Interest: You can claim the interest you paid on the money you borrowed to purchase the property. -Depreciation: This is a deduction of the decline in value of certain assets used in your rental business, such as furniture and appliances. -Repairs and Maintenance: These are costs that keep your rental property in good condition, such as repairs to the roof or plumbing. -Legal Costs: These are costs associated with buying, selling, or borrowing money for your investment property. -Initial Set Up Costs: This includes costs such as stamp duty, conveyancing fees and mortgage arrangement fees.

How much rental income is exempt from tax.

There's no definitive answer to this question since it depends on a number of factors, including your specific tax situation. However, as a general rule of thumb, any rental income that you receive is subject to tax in Australia. This includes money from rent, leasing fees, and other associated costs. That being said, there are a few conditions under which rental income may be exempt from taxation. For example, if you use the property for commercial purposes or if you're a registered charity, you may be eligible for certain tax breaks. Additionally, if you're renting out a room in your home (as opposed to an investment property), a portion of the rent may be exempt from tax.

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