Tax Tips To Maximise Your Property Tax Returns in Australia

Tax season can be a daunting time for many Australians, especially property owners. However, with a bit of knowledge and careful planning, you can make the most out of your property tax returns. In this blog post, we’ll explore some essential tax tips to help you maximize your property tax returns in Australia.

  1. Keep Accurate Records

One of the fundamental steps in maximizing your property tax returns is maintaining precise records of all your property-related expenses. This includes receipts for repairs, maintenance, and improvements, as well as records of rental income and expenses. If you have bought a new property during the financial year, you also need to make sure that you are claiming borrowing cost deductions based on costs listed in the loan agreement. In the meantime, there could be costs deductible in the Settlement Statement provided by the conveyancer. Having well-organized records makes it easier to claim deductions and ensure you don’t miss out on eligible expenses.

  1. Claim All Deductible Expenses

Australia’s tax laws allow property owners to claim various deductions related to their investment properties. Some common deductible expenses include:

a. Interest on your mortgage or property loan.

b. Council rates, strata fees, and land taxes.

c. Repairs and maintenance costs.

d. Depreciation on assets and fixtures.

e. Insurance premiums.

f. Property management fees.

g. For recently purchased properties: borrowing costs amortization based on loan agreement, relevant costs paid to the last owner listed in Settlement Statement

Ensure you claim all eligible expenses to reduce your taxable income and increase your tax return.

  1. Depreciation Schedule

Many property owners overlook the benefits of claiming depreciation on their investment properties. A depreciation schedule outlines the depreciation of assets within your property, such as appliances, carpets, and fixtures. Engaging a quantity surveyor to prepare a depreciation schedule can help you maximize your deductions, putting more money back in your pocket.

But property owners also need to be careful and understand whether the depreciation will help them to reduce tax in the long run. A lot of people don’t know that depreciation on building will be added back at the end on capital gains tax calculations when they sell the property. For low income earners who are property owners too, it is better for them to talk to an experienced tax accountant to understand whether the depreciation report will help them to save tax first. The situation could also get more complicated when there are multiple owners for one property that is a combination of high income or lower income earners.

  1. Consider Negative Gearing

Negative gearing is a strategy where you have rental income that is less than the interest and expenses on your investment property. The loss can be offset against your other taxable income, reducing your overall tax liability. While negative gearing can provide tax advantages, it’s essential to have a long-term investment strategy and seek advice from a financial advisor, or a tax agent who can help you with long term tax strategies.

  1. Take Advantage of Capital Gains Tax (CGT) Discounts

If you decide to sell your investment property, you may be eligible for a CGT discount. If you’ve held the property for more than 12 months, you can apply a 50% discount to the capital gain. This can significantly reduce the amount of tax you owe when selling your property.

Some deductions can be claimed as income tax deductions from year to year, or capital gains tax deductions when you are selling the property. With long term tax planning in mind, you might want to talk to an experienced tax accountant to help you to compare your marginal tax rates (from year to year) and the discounted CGT rate, to help you to minimize overall taxes through the years of property ownership.

  1. Keep Up With Changes in Tax Laws

Tax laws are subject to change, and it’s crucial to stay informed about any updates that may impact your property tax returns. Consulting with a tax professional or accountant who specializes in property investments can help you navigate the ever-evolving tax landscape and make the most of any new opportunities.

  1. Seek Professional Advice

Property tax laws can be complex, and making mistakes on your tax return can be costly. Seeking professional advice from a tax accountant or financial advisor (like us!) with expertise in property taxation is a wise decision. They can help you optimize your tax strategy and ensure compliance with all relevant regulations.

Maximizing your property tax returns in Australia requires careful planning, record-keeping, and a good understanding of the tax laws. By following these tax tips and seeking professional advice when needed, you can minimize your tax liability and keep more of your hard-earned money. Don’t miss out on the opportunities available to property owners to make the most of your investment.


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10 things you should consider before buying a property

Are you considering buying a property? Do you know you could miss opportunities to save thousands, or tens of thousands of dollars if you don’t plan well before the purchase?

Below are a few key considerations:

1. How should you set up your loan structure? If you don’t have a loan offset account for a rental property, after you make extra payments directly to the loan account, you can only claim interest deduction on the remaining balance of the loan. For tax purposes, this deductible balance can’t be changed even if you redraw the overpaid amount later. A good loan structure could also help you to stabilize interest rate and speed up loan repayment by combining a standard variable loan (with an offset account) and a fix rates account.

2. Timing of renovation. You might want to do a renovation right after you have bought the rental property. But do you know for any genuine repair & maintenance included in the renovation, you can claim an outright deduction against the rental income when the property is available for rental? If the work is done before the date when the property is available for rental, you can only claim the deduction against future capital gain when the property is sold. Depend on when you are going to sell, it could take years or up to decades before you can claim the deduction.

3. How should you split ownership? You might want to share the property ownership with a family member. For tax purposes, the percentage of ownership is based on the legal title, regardless of who is paying more on the mortgage. If the property will give you a tax profit, you might want to allocate more
ownership to the low-income earner to utilize the lower marginal tax rate. If it is giving you a tax loss, you might want to allocate more ownership to the high-income earner to utilize the loss. The goal is for the family to pay minimum tax together.

4. Should you use a family trust to purchase the property? There are many pros and cons related to a family trust. The advantages include tax savings on rental profit or capital gain, asset protection and succession planning on family wealth. However, family trust can’t distribute losses. All losses are trapped in the trust to be used to offset future trust profit. Therefore, you can’t utilize any rental loss in a trust to offset other income such as salary & wages. Family trusts also attract high accounting fees on initial setup and annual fees on financial statements and tax returns. State governments also charge much higher land tax on family trusts.

5. Will the income level change in future years for different owners? You might want to forecast the possible income for different owners to understand total tax payment / savings related to the property. This could also impact on your decision making on point 3 and 4 above.

6. Understand when you can treat your property as main residence to receive an exemption on capital gains tax. When eligible, even if you have received rental income, you could still treat your rental property as main residence and receive the exemption. To be eligible, you will need to treat it as your main residence at the beginning. Please check out this ATO link: Treating former home as main residence.

7. Decide whether you need to purchase a depreciation report. Most taxpayers don’t know that the depreciation on the building will need to be added back to calculate capital gains tax when the property is sold. When the property is held for more than 12 months, after applying the capital gains tax discount of 50%, it will effectively cut the tax rate by half at the time of sales. This makes depreciation deductions desirable for high income earners. However, for low-income earners it might not be ideal to claim depreciation as a rental deduction since they could be paying more on capital gains tax in the future. It could get more complicated if the property is under joint ownership between high and low income earners.

8. You might want to consider Centrelink payments for future or existing owners. Most Centrelink payments are income and asset tested. Before attaching a rental property to a family member who is receiving, or plan to receive government benefits, you might want to check the testing thresholds first to see if the Centrelink payment will be impacted. This is also applicable when you are making distributions from a family trust to different family members.

9. Have you considered using your SMSF (selfmanaged super fund) to make the purchase of a rental property? There are a lot of tax saving opportunities with a SMSF since the income tax rate is only 15%. And the capital gains tax rate is effectively only 10% after factoring in the 1/3 discount. The major downside with a SMSF is normally you can’t get the money out until you retire or on compassionate grounds (SMSF does have more flexibilities compared to normal retail super fund. But the choices are still very limited). It could be expensive to set up and operate a SMSF too. There are also strict legal requirements on the trustees. Penalties on incompliance could be severe. Tax law around SMSF is very complicated too. You will need to find a good tax accountant specialized in SMSF to help you to understand the structure, also do a cost-benefit analysis before setting it up.

10. Consider internal ownership changes. For your existing rental properties, you can also consider whether you should transfer the ownership between family members, or between different business structures (this is not applicable for SMSF). You might want to do this when the income level changes with family members, or rental property changes between tax profit and loss. Before the change, you need to consider the cost of transfer including capital gains tax, stamp duty, conveyancer fees, etc. Again, a cost-benefit analysis is a must before the change.

Last but not the least, did you combine all the above strategies and compare your choices? If you haven’t yet, how would you know that you have picked the best strategy to minimize your taxes? We can help you to factor in all considerations, compare different scenarios, also present you with a Property Prepurchase Report with all our findings to help you to make a decision. Contact us today to book in a consultation with an experienced tax accountant!

This is general advice only and does not consider your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.

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