By Momentum Wealth managing director Damian Collins
TAX deductions for property investors are widely known but rarely understood.
Given the complexity of the matter, understanding the tax deductions you’re allowed to claim can become overwhelming.
However, for property investors, it pays to be familiar with the ins and outs because you can literally save thousands of dollars.
Here are four ways to minimise your tax bill.
1) Income splitting for couples
Structure your asset holdings so that the lowest amount of tax is payable, while continuing to optimise wealth creation. Property is expensive to transfer and restructure, so you need to plan ahead before you purchase. As a general rule of thumb, negatively geared property should be in the name of the highest income earner while positively geared property should be in the name of the lowest income earner.
2) Maximising depreciation claims
Items deemed “plant and equipment” on your investment property are depreciable items and are treated separate to the building. To minimise your tax, understand what is classified as plant and equipment as well as these items’ depreciation rates. In some specific circumstances, the building is also a depreciable asset. This is for residential buildings where construction commenced on or after July 18, 1985 or where construction of structural improvements started on or after February 27, 1992. Most investors use a quantity surveyor to provide them with a depreciation report.
3) Travel expenses
In some circumstances, travel expenses can be deductible, such as meals, transportation and accommodation. This may allow investors to claim such expenses when inspecting interstate investment properties. However, this is only the case if it is the predominant reason for travel and if the travel coincides with private holidays, the expenses must be apportioned.
4) Investing via SMSF
The main advantage of investing via SMSF is the low tax rates – superannuation funds only pay 15 per cent income tax and 10 per cent tax on capital gains during the accumulation phase and 0 per cent tax in pension phase for most investors. However, SMSFs aren’t for everyone as they can be costly to establish and maintain. Investors need to consider the pros and cons of investing via SMSF and if it’s an option that suits their strategy.
Momentum Wealth and its affiliated entities are not accountants or financial planners. While all information is provided in good faith, you should seek your own independent advice in relation to all tax matters.