The difference between a good property investor and a great one often comes down to how well they manage their tax position. Here are ten practical tips that can make a real difference to your after-tax returns.
The 10 tips
- Get a tax depreciation schedule: Every investment property should have one. A quantity surveyor can identify thousands of dollars in annual deductions.
- Claim all allowable deductions: Interest, rates, insurance, management fees, repairs, advertising and travel (with restrictions) are all claimable.
- Understand repairs vs improvements: Repairs are immediately deductible. Capital improvements must be depreciated. The distinction matters and is often misapplied.
- Use an offset account correctly: Keep your offset account on your home loan, not your investment loan. Mixing them can compromise the deductibility of investment interest.
- Keep records of everything: Receipts, invoices, bank statements. The ATO requires you to substantiate every deduction you claim.
- Consider ownership structure carefully: Joint names, individual, trust or SMSF — each has different tax implications. Get advice before you buy, not after.
- Understand the 50% CGT discount: Properties held for more than 12 months qualify for a 50% capital gains tax discount on sale — a significant advantage for long-term investors.
- Time your sales strategically: If possible, sell in a year when your income is lower (e.g. if you take parental leave or reduce hours) to minimise capital gains tax.
- Claim borrowing costs: Loan establishment fees and mortgage registration costs can be deducted over five years.
- Work with an investment-specialist accountant: General accountants may not be across the full range of property investment deductions. An investment specialist is worth the additional fee.
Reminder: Tax rules change. What applied last year may not apply this year. Always confirm your tax position with a qualified accountant who specialises in property investment.