Saving Tax with Property: How Does an Investment Property Reduce Tax?

Dec 25, 2022

How does an investment property reduce tax, saving tax with Property

How an Investment Property Saves Cash at Tax Time: Save on Tax Today – Invest in Tomorrow

Today’s savings are tomorrow’s investments. They are a chance to better your lifestyle and your family’s legacy.

Are you capitalising on your investment property?
How does an investment property reduce tax?

Today, we are exploring this topic to give you awareness and to ensure you are 100% confident you are saving everything you can at tax time.

Whether you are already across investment property deductions or not, there is no bad time to:

• Review what deductions you can claim.
• Re-evaluate your tax minimisation strategy.
• Put more money back in your pocket every financial year.

Scroll down to learn more. Remember that you are always welcome to contact us to discuss your situation in more detail.

 

Australia’s Middle and Upper-Middle Class are Carrying the Nation’s Tax Burdens

Something we can forever rely on is the tax needs of society will always continue growing(*1). The people who carry this burden (with a median annual taxable income of $57,245(*2)) are:

How to save on investment property• Middle class (20% of Australians, generally couples earn a total of $1,884 per week(*3)).
• Upper-middle class (20% of Australian couples who generate $4,166 each week) (*3).

So, for these two groups in Australia, how do we best manage it and what can we do to reduce their tax burden?
In the ATO’s last release of taxation statistics, there were 2,207,905 individual property investors in Australia(*4).

Property Income, Profits or Returns May be Classed as Taxable Income

Taxable Income – Thresholds

Investment property income is oftentimes classed as taxable and is added to your employment income for tax purposes(*5,6). Use this knowledge to understand potential returns and deductions so to capitalise on your investment.

Develop a Property Investment Strategy

Talk to a professional property planner or financial advisor such as Tim Murphy of Mentor1 Property for:

• Unbiased information.
• Personalised property investment strategy.
• Long-term returns.

Tip: You may also claim costs incurred from meetings relating to managing your tax affairs(*7).
There is no better time to start claiming deductions than right now.

How An Investment Property Saves Tax – Before It Is Rented

Tax deductions are available before the property is rented – some immediately, others over the long term(*8).

Immediate Deductions to Claim

• Costs relating to listing and advertising rental property.
• Borrowing expenses of $100 (or less)(*8).
• Some minor repairs and depreciating assets(*8).

Long-Term Deductions, Including Capital Works

 

How does an investment property reduce tax, saving tax with Investment Property

 

• Getting the property up to reasonable living standards to be tenanted – capital works deductions.
• For example, if the roof is in complete disrepair and needs to be replaced, a deduction can be claimed over 40 years at 2.5% per year(*8).
• Borrowing expenses of over $100 (spread over five years)(*8).

Continue to Reduce Tax After the Property is Tenanted

Repair, Maintenance, and Replacements

Many costs incurred from rental properties can be claimed. Many repairs are immediately deductible if the property was damaged or if you had to tend to wear and tear (*10).

The ATO gives the example of having to replace the hot water system(*8). They say this kind of expenditure can be claimed as a deduction in the same financial year if it is valued under $300. Higher replacement costs can be claimed over multiple years.

Interest Charged on Your Loan for Rental Property Purchase

The loan interest is claimable if you took out a loan to buy the rental property (*8). If you obtained finance to conduct repairs or purchase a depreciating asset, you may also be entitled to claim the interest charged, including pre-paid interest(*9).

Please note all information provided is general and does not constitute official tax advice.

For personalised advice relating to your circumstances, call the expert advisors at Mentor1 Property on 1300 765 811 or email info@mentor1property.com.au.

 

References

*1. Mentor1 Property. How Investment Property Reduces Tax Burdens and Save - 1 Minute Mentoring. Sydney, NSW. YouTube video. 2022.
*2. The Guardian. Middle Australia earns $100,000 and has a negatively geared property? Not true. 2020.
*3. ACOSS & UNSW Sydney. Inequality in Australia 2020 Part 2: Who Is Affected and Why. 2020.
*4. Australian Taxation Office (ATO). Taxation Statistics 2017-18: Individuals. Table 27a. 2021.
*5. ATO. Investments and Assets. 2022.
*6. ATO. Individual Income Tax Rates. 2022.
*7. ATO. Cost of Managing Tax Affairs. 2022.
*8. ATO. Top 10 tips to help rental property owners avoid common tax mistakes. 2022.
*9. ATO. Rental properties – interest expenses. 2022.
*10. ATO. Rental properties – damaged or destroyed property. 2022.