One of the great things about purchasing and owning an investment property is the fact that it can help you save tax. You can actually claim the expenses and some depreciation against the rental income so you’re not paying as much tax as you might have been earning that money from somewhere else.
So here are my five tips for saving tax on your investment property.
Tip#1: Claim building depreciation
It still amazes me to this day how few people actually claim building depreciation on their property.
Building depreciation is depreciation that you can claim on the building itself. So that might be a house. And the way that you claim this is based on construction costs. For most properties you can claim 2.5% of the construction costs over the space of 40 years.
How do we find out that construction cost? I believe the best way to find it out is to get a quantity surveyor to come in and to do a depreciation schedule for you on both the building and on the plant and equipment.
A quantity surveyor will be able to give you an accurate calculation so that you can claim as much as possible.
Tip#2: Claim plant and equipment depreciation
Plant and equipment depreciation is depreciation of assets within your property.
This includes things like carpet, floorboards, curtains, light fittings, fixtures and so forth. These are things that you need to replace or upgrade from time to time because they wear out and get old.
Depreciation is very complex when it comes to plant and equipment and that’s why I created a full and more detailed blog post.
You can again pay a quantity surveyor to get this done for you. They understand the tax laws and know how quickly you can depreciate certain assets. There’s two different ways of depreciating assets and they can do everything for you.
There are some quantity surveyors who actually offer a guarantee that the tax savings you will through their report will be greater than the cost of their report. It’s something worth looking at.
Tip#3: Track all of your expenses
One of the things that stops people saving the most tax on their property is the fact that they forget to keep receipts and they forget that they made property related purchases at all.
Track all of your expenses if you’re making purchases that relate to your investment property and relate to that property generating income for you.
Keep your receipts and take them to your accountant at the end of the year. He will be able to tell you which ones you can claim and which ones you can’t claim.
Tip#4: Track expenses for trips to the property
Let’s say you live in New South Wales and you’ve invested in a property in Queensland. There are rules that state that you can go and inspect that property and claim the expenses that are associated with that.
That might be the flight there and back and one night’s accommodation to stay there.
A lot of people add a holiday onto the back of this. You need to be careful with that because you can only claim the expenses that are related to the property. You can’t go on a ten day holiday and claim the entire holiday as a property expense.
But you may be able to claim the flights there and back for yourself and one night’s accommodation for yourself as well.
I do suggest you speak to a professional tax accountant about this. They will help you maximise your returns and get the most out of the expenses without going overboard and without breaking the law.
Tip#5: Get a scrapping schedule done
I’ve done a video on scrapping schedules in the past. But this is the basic idea.
You can get a quantity surveyor to do a scrapping schedule if you’re doing any renovations or if you’re replacing anything major. The quantity surveyor will effectively measure how much of the value of that item is left and you can then claim that as depreciation.
Let’s say you’re ripping out the carpets. They cost you $2,000 when you first put them in and they’re now worth $400 or you’ve got $400 left that you haven’t claimed.
You can scrap that $400 because you’re replacing them with new ones and you can claim that $400 as a tax expense. Obviously that’s an example. Don’t use that in your personal life. Get a professional to do it for you.
So there are five tips on saving tax on your investment property.