Three tax tips for property investors

As a property owner, you know that there are numerous benefits associated with owning an investment property. It is important to be familiar with these and know if you are eligible for the tax deductions they afford.

Get advice on structure

In most cases a company is not an appropriate vehicle for purchasing an investment property. The use of a trust can be a major benefit to property investors by improving asset protection, estate planning and increasing flexibility. Consideration should be given to using a unit trust (as opposed to a discretionary trust) if negative gearing could result in losses being trapped in the trust.

Pre-pay expenditure

If you can afford it, pre-pay the next year’s interest on your loan before 30 June and claim it as a tax deduction in the current year, as this will significantly reduce your taxable income. Only pre-pay for one year, though, as this is the only period that can be claimed as a deduction.

You could also get a deduction in the current year by pre-paying the following year’s income protection insurance premiums, rates and levies.

Repairs to properties made prior to 30 June can also be claimed in the current year, rather than waiting till June next year. However, be careful not to claim as repairs items that are considered to be improvements: generally improvements are depreciated whilst repairs are deducted.

Tax depreciation schedules are important and should be kept updated

Engage a quantity surveyor to prepare a depreciation schedule for your property. The schedule will distinguish between the different rates of tax depreciation that can be claimed on the plant and equipment within the property, the capital works (including common areas, if applicable), and any renovations and improvements carried out to the property.

It is important to keep the tax depreciation schedule updated. When performing a renovation, a quantity surveyor should be engaged to identify the new items that are to be depreciated and to produce a scrapping schedule, which entitles you to claim a deduction for the all items that will be destroyed or replaced by the renovation.

(This information was supplied by Brett Kelly from Kelly + Partners and is used with his permission.)