INCREASING YOUR BOTTOM LINE WITH INVESTMENT PROPERTY

Reception • January 28, 2020

Claiming everything you’re entitled to from the ATO is one proven method of increasing your bottom line with investment property.

Investment property expenses you can NOW claim


Understanding the ATO’s latest rules on what you can claim on your rental property can significantly increase your returns.


The ATO allows you to claim an immediate deduction (against your current year’s income) for the costs associated with:


  • maintaining
  • repairing
  • managing and
  • improving your property, as well as
  • mortgage interest and some legal costs


Maintain, repair or improve – but DON’T blur the lines

MAINTENANCE


The ATO defines maintenance as: “work to prevent

deterioration or fix existing deterioration”.


  • painting
  • cleaning
  • gardening
  • lawn mowing and
  • pest control


are all considered maintenance.


Something like regular servicing of the hot water system or air conditioning unit is considered maintenance as well.




REPAIRS


The ATO defines repairs as: “work to make good or remedy defects in, damage to, or deterioration of the property”.

So, for example, if the hot water system breaks and you pay to have it fixed – that’s a repair.



IMPROVEMENTS


The ATO defines improvements as anything that will increase the value or life of the property or anything that goes beyond the definition of repairing.


Replacing the old hot water system with a new solar system (even if the old system was no longer working) – that is considered an improvement.



THE ATO EYES ARE WATCHING YOU…


The distinction is important (and the ATO keeps a keen eye out for improvements incorrectly claimed as repairs).


Maintenance and repairs are eligible for an immediate deduction. Improvements are NOT.


You also cannot claim a deduction for the cost of improvements in the year you incur them.


Capital improvements (such as renovating a bathroom or kitchen) must be claimed as capital works deductions over several years.



Property management AND maintenance of your records


Property management is generally an area where you will have substantial expenses, regardless of the age or condition of the property.


The ATO says expenses including:


  • advertising for tenants
  • body corporate fees and charges
  • council rates
  • water charges
  • land tax
  • property agent’s fees and commission, as well as
  • insurance costs (building, contents, public liability)


may all be eligible for an immediate deduction in the year it is incurred.


It is important for you to keep accurate records to make sure you are claiming everything you’re eligible for to support your claims.



Interest just got interesting


It is common knowledge that you are able to claim against the interest paid on your investment loan, however it is important to remember the property must be rented out or genuinely available for rent in the income year you are claiming a deduction.


You may not be aware however that you can also claim the interest on a loan used to:


  • purchase a depreciating asset for the rental property (like a new hot water system)
  • a loan used to pay for repairs to the rental property (like fixing the hole in the wall the tradies made while removing your old hot water system), or
  • a loan used to fund renovations.



Legal expenses – we object!


Legal fees always sting a little, so it’s good to know the ATO will allow some of them to be claimed as deductions.


For example, if you have to pay legal fees to:


  • evict a non-paying tenant, or
  • take court action for loss of rental income, or
  • defend a damages claim related to your rental property


you can claim them as an immediate deduction.



It’s all about YOUR opportunities


If you are not positioning yourself to take advantage of all the tax deductions available to you, then you are wasting these opportunities to have more money in YOUR pocket. Understanding what you can claim, and then making a claim, is one of many proactive steps you can take to improve your financial position and gain a greater return on your investment(s).


Did you know – you can claim your tax deductions back in your pay each week?


If you are struggling to finance your investment property week to week and cannot wait until the end of tax time, then you may request a PAYG withholding variation with your pay officer. This essentially means that the amount of tax you pay (according to your projected investment property deductions) can be withheld from the ATO each pay cycle and remains in your hands until it is reconciled in your tax return at the end of the financial year.


HOWEVER – it will mean you are unlikely to get a big fat tax return each year. So chat with us to see what options will suit you and your cash flow best.


Need help?


If you would like guidance on utilising rental tax deductions available to you in an ever-changing financial and taxation landscape, contact our office today for assistance.

Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. ©2019

6 Tips to Help Choose Between Selling or Renovating

By Kola Dev • September 2, 2024
Assessing the benefits of an extensive home renovation against selling your property is always a worthwhile exercise. Selling your home is rarely an easy decision. It will often hold family memories, and that makes it tough to leave. It’s also likely to be your most significant financial asset, and you want to be confident you can maximise its value. The process of selling isn’t cheap with commissions, legal fees and taxes. But the alternatives are to tolerate your home in its current condition or to talk to an architect or builder about giving your home a makeover. That’s not cheap, either. Costs can run into hundreds of thousands of dollars, and there’s never a guarantee the work will finish on time and budget. If you think selling is stressful, you should try a large-scale renovation! Regardless of which way you jump, it’s likely you’re going to need finance - whether that’s refinancing your current loan for a renovation or a new loan for a new property - so it’s worth talking to your mortgage broker to understand your options. Here are a few tips to help you think it through. 1. Structural issues Nothing dates a bathroom like colour. You can tell if it was built in the 70s and 80s merely by the colour scheme. Most bathrooms today are based on white, rather than old school creams or browns. If your bathroom can remember when David Cassidy was making hits, then the time to act is overdue as aging bathrooms usually also have waterproofing issues. 2. Money in the bank You can afford to decide whether you want to pour your hard-earned cash into your existing home, or climb the property ladder and find a superior property. Or if you’ve paid down a lot of your current home loan, you may be able to redraw to fund a renovation. 3. You intend to stick around If your home is well located, you may opt to stay and maximise the potential rather than move. However, if you favour a renovation, be aware that upgrades offer the best payback when you sell within a year or so of the work being completed. Your new kitchen doesn’t stay new forever although it is likely to give you a lifestyle benefit for at least a decade. 4. Big squeeze If your current home is getting too small, you’ve got the option of building an extension, but that means you’ll have to battle the planning process as well as the stress of selecting an architect and builders and perhaps paying rent while the work is being done. If the rebuild is so big that you need to move out anyway, a new home might be a more straightforward option here. 5. Living in the 70s Many owners who take the upgrade path want to modernise their homes. They’re fed up with the rabbit-warren design of small, disconnected rooms and yearn for open-plan living, plus a new kitchen and bathroom. Making such fundamental changes are expensive, and it is worth checking out the prices of more modern homes nearby before going ahead with a renovation. That will help you understand the value that you’re adding. 6. Dead space Poor design can result in some rooms being ignored, either because of their size or their position relative to the main living areas. Real estate is not cheap, so this is very wasteful. If fixing the problem is difficult, finding a new, better-designed property will pay off for you financially in the medium to long-term while also helping you take the next step on the property ladder. Give us a call on (03)8657 8664 to have a chat about the best way to fund your home improvements.

Tax Deductions for Investment Properties Explained

By Kola Dev • August 5, 2024
Owning an investment property is a little like running a business. It provides a great source of income and builds personal wealth but inevitably comes with a series of costs that hit your bottom line. The excellent news for property investors is that many of these expenses are tax-deductible. Tax advantages are not just available on new properties. While an older building may have limits on what you can claim, you do not have to buy a new house or apartment to qualify for tax benefits. There are two components of a tax claim for a rental property. These are: Capital Works Allowance covers the structure, such as walls and roof tiles; and Plant & Equipment covers the so-called removable assets such as carpets, stoves, and hot water system.  You should always obtain professional accounting and tax advice to understand exactly what can and cannot be claimed according to your own specific circumstances as the Australian Tax Office changes the rules regularly. For example, only investors of new property can make claims under plant and equipment assets. However, exclusions exist for those properties that have been renovated. Those who own older properties can continue to depreciate items that fall under the capital works component, so long as it was built after September 15, 1987. And you may benefit from depreciation even if a previous owner undertook improvements. So, working out what you can claim legitimately requires the eagle eye of a professional. In general, you will find the following items are tax-deductible: Costs associated with a property manager, which are usually 3-8% of rental income Accounting and professional financial advice Advertising if required to find new tenants, plus associated re-letting costs Strata levies Rates and land tax Insurances Loan interest and ongoing loan fees Also, work with your accountant or financial adviser to build a tax depreciation schedule for your property. This document will list all the items in your property that qualify for depreciation. It should only need to be completed once, and it can then be submitted to the ATO each year to ensure you obtain the maximum possible tax benefits from your rental property.

A Guide to Purchasing Your First Investment Property (and Beyond)

By Kola Dev • July 1, 2024
Investing in property isn’t rocket science but there are a few rules savvy investors should follow for success. Here are some things we’ll cover in the next couple of weeks to get you started. Should I invest? Investing isn’t right for every one.The first thing you need to do is make sure you’re in the right financial position to take the risk. How do I build a strategy? Before you start your journey you need to do plenty of research and build a strategy around your specific budget and financial needs. How do I choose the right loan? Once you get your finances in order, start shopping around for a great loan. Make sure you get pre-approval from your lender before you start looking for your investment property. How will I manage my investment? It’s important to remember that an investment property is a long term commitment and you need to know how you are going to manage it over the life of your loan. With the right advice and loan, property investment can be the most satisfying and profitable decision you make. If you have any questions or want to discuss whether property investment is right for you, contact us on (03)8657 8664 or email us at reception@futurefinancegroup.com.au
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