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By Lyndsey Douglas
If you own an investment property these are just a handful of the tax deductions you can claim.
Even though Australian Prudential Regulatory Authority (APRA) speed limits on investment home loans slowed down the market over the end of 2015, there is still a lot of interest in this market. Australian Bureau of Statistics figures showed that nearly a third of lending in January 2016 was to investors.
It's small wonder, really. Investment property is the key to wealth management for many Australians, particularly once you consider the tax deductions that are available at the end of the financial year. Granted, deductions (namely negative gearing) are currently key Federal Election topics, but for now investors can take advantage of tax breaks such as the following as part of their upcoming 2015/16 tax returns:
1) Repairing and maintaining a property
As soon as you buy an investment property, it is going to be subject to wear and tear. No matter what causes it, there will be times when it is necessary to call a plumber or electrician, or even do the handiwork yourself. But come tax time, these are expenses that can actually be deducted.
This includes damage from natural causes, with the Australian Taxation Office (ATO) specifying falling trees and heavy storms as common occurrences that necessitate repairs. As for maintenance, this could be anything from hiring a gardener to fixing up the plumbing.
2) Comings and goings
If you live fairly far from your investment property, like many rentvestors do, then making a trip to inspect or fix the home is going to take up a large chunk of your day - and petrol costs. Fortunately, travel to and from your rental property is also tax-deductible.
However, it has to be for trips when you are on official business as a landlord. Dropping in to admire the view doesn't count! However, trips to your agent to discuss how the property is faring are eligible.
3) Resolving disputes
While many Australian property investors have good ongoing relationships with their tenants, there are always those which turn sour and become fully-fledged legal disputes. According to the ATO, the expenses you can claim for legal costs come in the following forms:
- Court costs when disputes go to this point,
- Dealing with damages claims involving your investment property,
- Costs associated with evicting tenants.
However, the legal costs associated with applying for a home loan can't necessarily be claimed back. Speaking with a wealth manager is one good way to clarify what you can and cannot claim to improve your financial standing.
4) Taking care of bugs
Hopefully, when you purchased the investment property you undertook a thorough pest inspection, to make sure termites wouldn't be getting into the wood a few years down the line. Unfortunately, it does tend to happen.
The silver lining here is that pest costs are also deductible at the end of the financial year. Essentially, many expenses that you incur when managing and maintaining your real estate investment will bring you benefits at tax time.
5) Australian home loan fees
Even from the beginning of the home buying process, there are ways you can save money through tax deductions. If you secure a mortgage to make the purchase there are many costs that come under the deductions umbrella:
- Lenders' mortgage insurance,
- Any fees associated with a mortgage broker,
- The costs of establishing a home loan,
- Property taxes such as stamp duty,
- Fees involved with getting a valuation.
Investment property isn't the only way to create wealth, but it certainly is a useful one."
Investment property isn't the only way to create wealth, but it certainly is a useful one. The ability to generate cashflow while you also build equity can see you in an advantageous financial position with minimal effort, but it's important to get the right financial advice. Get in touch with a Yellow Brick Road local representative if you want to find out more about the tax benefits of investment property, or start planning your own strategy.