Get your house in order for investment tax deductions

PROPERTY investment can deliver some handy tax deductions, but you need to start thinking about yours well before June 30.

Investor and property manager Prue Muirhead says prepaying expenses can help. Pic: Tricia Watkinson

TAX time is just six weeks away, which means Australia’s two million-plus residential property investors should start planning now if they want to enjoy a juicy tax refund.

Leaving tax planning to the last minute might mean missing out on valuable extra cash in the new financial year, and experts says it all starts with educating yourself.

Know what tax deductions you can claim. Interest on the mortgage is usually the biggest, but you also can claim deductions for expenses such as deprecation, phone calls and travel costs, says Prue Muirhead, director of Muirhead Property Management and owner of 18 properties.

“If your property was built after 1985 you are likely to have the ability to depreciate the bricks and mortar of your investment as well as the fixtures and fittings,” she says. It’s usually 2.5 per cent a year of the building cost and “an incredible bonus”, she says. For a $200,000 construction cost, that’s a $5000 deduction each year that costs you nothing.

The Australian Taxation Office has a free rental properties guide, available to download online or order by phone each year, which lists potential deductions and other important rules.

Muirhead says you can prepay expenses such as interest and insurance 12 months in advance if you want to bring forward some deductions, while wage earners who want to spread their tax savings out over a year can organise a PAYG tax variation with their employer to reduce their weekly tax payable.

“This is a good time to talk to your accountant about the year ahead.”

Investor, author and university lecturer Peter Koulizos says finding an accountant who understands property investment may be easier said than done.

If your investment property needs some maintenance, it’s a good idea to get it done before June 30. “You can get the refund for it in July rather than wait another year,” Koulizos says.

He says a depreciation schedule is one of the most important things to organise. Usually costing between $500 and $700, they give you a breakdown of all your depreciation tax deductions for several years and many guarantee that you will get more money back than the report’s cost.

BMT Tax Deprecation chief executive Bradley Beer says the cheapest depreciation schedules may be cutting corners. “We find that around 80 per cent of investors aren’t maximising their depreciation deductions because they have guessed, done it themselves or are missing deductions,” he says.

“Educate yourself. Know that you have spent at what is deductible, and know what questions you should be asking your accountant.”