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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.