With the end of the financial year looming, it’s time to talk tax.
If you own an investment property, you are entitled to a number of tax benefits.
Many deductions available to investment property owners fall under the term ‘negative gearing’.
Gearing is borrowing money to buy an asset. Many people borrow money to buy property with the intention of holding onto it for the long-term, until it increases in value. The law in Australia allows investors to deduct any losses they make on an investment property from their taxable income, making it easier for people to invest in the property market.
A property is negatively geared when your rental return is less than your interest repayments and other expenses related to maintenance and repairs.
Any net rental loss you incur during the financial year may be offset against other income (usually your salary). This reduces your taxable income and therefore the amount of tax you pay.
If you own an investment property, you are also entitled to claim a deduction against the depreciation in value of your investment property. This claim is generally prepared as a document known as a tax depreciation schedule and can include the cost of any decline in value to a building’s structure as well as fixtures and fittings, as well as the cost of a dedicated home office.
As the owner of an investment property, you can claim the costs associated with repairs and maintenance such as painting, electrical repairs, guttering and plumbing expenses.
Major renovations or an extension on your investment property are generally considered ‘capital works’ and the deductions for these need to be spread over a number of years.
Not an investment property owner? Don’t worry. The following tax benefits are available to owner-occupiers:
Working From Home During COVID-19
Australians who worked from home during Covid-19 will be able to claim some working -from-home expenses as a valid tax deduction for the 2020-21 financial year.
The government has implemented a temporary shortcut method to simplify these calculations. This involves claiming 80 cents per hour for each hour you worked from home.
The ATO has a full explanation of all ways to claim these deductions on their website
Running A Home Office
In normal circumstances, you can claim a home office as a tax deduction if it is your primary place of business. Deductions potentially include mortgage interest, the cost of cleaning and repairs, and home insurance.
Keep in mind that the portion of your residence that you use as an office may attract capital gains tax if you sell your home.
Owner-occupiers can also claim some of the expenses of working from home, even if they don’t technically run a ‘home office’. These include energy bills for heating, cooling and power, cleaning of the work area, phone and internet charges, computer consumables and depreciation costs for office equipment over $300.
Owner occupiers may also be able to claim tax deductions if they are ‘live-in landlords’. This is done using the apportion method – a common way to separate tax-deductible expenses between private and personal use.
Deductions a live-in landlord can claim include internet and phone costs, water, power and council rates, upkeep and repairs, depreciation on the cost of furnishings and equipment, interest-only mortgage repayments, and body corporate fees if applicable.
Again, you may be liable for capital gains tax when you sell your home. Check with your tax accountant to get the best advice for your situation.
Keep it Simple
Keep receipts and proper documentation to support your claims. Incorrect or fraudulent claims can attract heavy penalties from the tax office and are much easier to spot with the advent of electronic and automated records.
If you are the owner of an investment property, The Home Inspection Hub can help you maximise your tax deductions with a tax depreciation schedule – this is a tax-deductible expense.
The process is straightforward:
- Contact us for a quote and provide some initial information about your circumstances.
- We will arrange an inspection time with you or your property manager.
- Our qualified quantity surveyor will conduct an inspection and complete a report based on their findings.
- You will receive a thorough, detailed report along with a receipt you can take to your tax accountant.
Get on top of your tax early – call The Hub and book in a tax depreciation schedule before tax time gets under way.
Call us on 1300 071 283 or email firstname.lastname@example.org